Tighter lending algorithms make Beforepay profitable, CEO says


Beforepay founder Tarek Ayoub and CEO Jamie Twiss. Source: delivered.

The fate of prepayment fintech Beforepay appeared to be changing on Thursday after a new report pitted losses against rapid customer growth and a sharp drop in debt writedowns.

Launched in 2019, Beforepay caters to the buy-now, pay-later sector with its focus on payday advances.

The Australian fintech offers users a short-term advance on their salary, typically up to $200, before those payments — plus a 5% service fee — are automatically deducted when those users get paid.

The company made headlines in January as its shares plummeted about 42% in the hours after its ASX debutdriven by investor concerns about customer default rates and broader market concerns weighing on technology stocks.

Still, Beforepay’s active customer base grew to more than 158,000 in the March quarter of 2022, the company said Thursday, representing a 14% growth from the December quarter and a doubling from the March 2021 level.

Perhaps even more significant for the fintech is the improvement in its net transaction margin, which came in at $1.05 million in March 2022 compared to a loss of $750,000 in the same period last year.

Key to this turnaround was a decrease in net transaction loss – ie expected and actual credit losses as a percentage of Beforepay’s advances and fees.

Net transaction losses were 2.2% in March 2022, Beforepay said, up from 3.1% in the previous quarter and 5.3% in March 2021.

Marketing expenses more than doubled for the year to $6.4 million in the March quarter, but the company remains on a positive path.

“The continued momentum of user growth, revenue growth and strengthening margins represent another step on our path to profitability,” CEO Jamie Twiss said in a statement.

Shares soared as much as 7.83% in the hours following the release of the interim report Australian Financial Report Reports, however, remain well below their January list price of $3.41.

Sharper algorithms behind the turn: CEO Jamie Twiss

Speak with SmartCompanyTwiss says a significant improvement in its risk assessment algorithms was behind this drop in loan write-offs.

Marking another parallel to “buy now, pay later” providers, Beforepay does not perform traditional credit checks, instead relying on an internal screening and verification system.

“These algorithms — as we feed them more and more data as our team of data scientists, an area in which we’ve invested quite heavily, continue to work to refine and improve these models — their predictive power has only gotten sharper,” he called.

“And as these models get better and smarter with more and more data, we can make better and better decisions about who gets a salary advance and who doesn’t, and then what limit we get assigned to that person.”

The average earnings of Beforepay users also increased over the year from $44,458 per year in March 2021 to $56,182 per year in March 2022.

The fact that Beforepay customers have become “more affluent” “was also a contributing factor to lower net transaction losses,” says Twiss.

“We always expected our average customer to look like the average Australian, and we actually see that,” he added.

Report against the background of the cost of living

Beforepay’s results are being accompanied by skyrocketing inflation, which is driving up the cost of essential goods and services while outpacing average wage growth.

Underlying inflation of 3.7% is well above the Reserve Bank of Australia’s 2%-3% target range and broader economic sentiment is now forecasting the central bank to hike interest rates in May as a result.

Even before that price pressure appeared, critics criticized fee-based wholesale services, including the Center for Consumer Protection Lawexpressed concerns that pay-on-demand services may offer benefits that some users cannot repay.

“As a member of Australian society, I am concerned about the country’s macroeconomic health,” Twiss said, while maintaining Beforepay acts as an “ethical and customer-friendly alternative” to traditional payday loans.

The Beforepay report also found that the short-term nature of its loans means that a 1% rate hike would increase the cost of an average salary advance from 0.52% to 0.56% of the amount advanced.

“I am very happy with these results,” said Twiss.

“And I think we continue to show that the product is working well for customers, that we are creating value and that the future is bright for the company.”


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