Payday lending fintech Beforepay tanks on debut

Payday lending fintech Beforepay had the $35 million value of its IPO wiped away on debut on the ASX today, with the company’s share price plunging 44% in its first day of trade.

Making an early bid for 2022’s worst opening day – the drop saw Beforepay (ASX: B4P) float at $3.41 per share, but it opened trading at $2.50, then close the day at $1.905.

The float valued the business at $158.4 million. The fall wiped around $70 million from its market cap – double the IPO raise.

The fintech first emerged last 2019 as Cheq, then raised $4 million later that year in a round led by Vocus founder James Spenceley. Two months later in January 2021, it tapped investors for another $9 million in a pre-IPO round led by Alium Capital.

Beforepay offers a cash advance against your pay via an app. It charges a 5% fee and automatically deducts the loan from your bank account when you’re next paid. The venture says it uses machine learning, artificial intelligence and statistical analysis in its loan approval systems. It’s playing in a crowded market of cash advance lenders that also includes Fupay, WageTap, and EverydayPay.

The company has been advertising extensively on TV using dinner date scenarios where a gormless man or woman meets a snappily dressed future them encouraging them to take out an advance on Beforepay to buy lobster. The ads were criticised on the ABC TV’s Gruen by ad guru Todd Sampson, who said: “The thing I find dark is they’re almost admitting they’re targeting losers.”

Co-founder Tayek Ayoub is Beforepay’s biggest shareholder with an 11.84% stake. The fall wiped more than $8 million from its value of his stake, which was worth $18.75 million, but closed trade valued at $10.56 million.

His co-founder Dean Mao owns 9.7%, Alium Capital, 6%. Spenceley, who sits on the board, chaired by former Westpac boss Brian Hartzer, is Beforepay’s 5th largest shareholder with a 3.32%, which fell from around $5 million in value to $3m.

The company is led by former Westpac head of strategy Jamie Twiss.

While 12 months ago, the business was claiming it had around 200,000 users, the figure is actually 139,000.

The company makes at average loan of $260, which takes around 15 days to pay off. Most notable in figures released ahead of Monday’s float, the company said its credit default rate had fallen from 7% in December 2020, to 3% now. In its prospectus, the business generated $4.5 million in income, but wrote off a total of $5 million.

Lending has more than quadrupled from $16.7 million in December 2020 to $77 million 12 months on.

Because Beforepay charges a flat fee rather than interest on loans, it has an exemption from the National Consumer Credit Protection Act as well as sitting outside the national credit code. Last year ahead of the float, the business stopped lending to people whose main source of income from Centrelink welfare payments.