The fintech sector has been on a steep growth trajectory over the past couple of years, especially in areas such as payments. Investors have been happy to contribute to capital raisings for companies that are still in start-up mode, with substantial accumulated losses and cash outflows, as they invest in business growth.
Those business models are about to undergo a stress test, as the big market falls make it hard for small companies to raise funds.
A number of financial services companies have been updating the market on their financial positions over the past week. Among them are loss-making fintechs keen to reassure investors that they had sufficient funding to maintain their operations.
Afterpay. Buy now pay later company Afterpay made a loss of $31.5 million on revenue if $220 million over the six months to December last year. The loss compares with a loss of $22.2 million in the previous corresponding period.
It had a receivables impairment expenses of $47.8 million and operating expenses of $80 million. Cash outflow from operating activities was $342.1 million (based on customer receipts of $4.1 trillion and payments to merchants and suppliers of $4.4 billion).
Debt increased from $50.2 million at 30 June last year to $416.9 million ay 31 December. The company’s cash position fell from $183.3 million at 30 June last year to $8.7 million at 31 December.
The company has an ambitious expansion program, with activities in Australia, New Zealand, the United States and the United Kingdom. Its December half financial report says: “The investment in employment and operating expenses related to expansion of the Afterpay global platform, delivery of new product features, marketing costs to support customer and merchant adoption, and general business growth.”
In its latest update, Afterpay chief executive Anthony Eisen says the company has $1.1 billion of warehouse facilities in place with major financial institutions. One-third of the warehouse facility is drawn. After recent capital raisings it has cash on the balance sheet of $420.5 million.
On the issue of impairments, Eisen says: “Due to the short duration of our receivables book (less than 30 days), we are able to manage losses in real time by identifying them early and modifying risk parameters in the system immediately.
“We are well prepared to respond to any changes in customer repayment behavior. However, we have not seen any changes relative to past performance.”
Openpay. Buy now pay later company Openpay, which listed on the ASX in November, reported that it was in a “strong” financial position, with a cash balance of A$45.7 million and a further $45 million of undrawn capacity.
The company has 561,000 active plans and 1959 merchant partners.
It had net cash outflow of $30.2 million during the December half. Receipts from customers rose from $44.5 million in the December half 2018 to $76.5 million in the latest half.
It said the cash outflow was driven by costs associated with volume growth and continued investment in the business.
It made a loss of $15.9 million in the December half.
Sezzle. Instalment payment company Sezzle, which was listed on the ASX in July last year, said it had US$35.2 million in cash and cash equivalents at the end of January.
It said it had capacity for growth, with only 20 per cent drawn on a US$100 million credit facility.
For the year to December, Sezzle lost $16.6 million and had net cash outflow from operating activities of $19.9 million, compared with $6.2 million the previous year.
The company said: “Increased cash usage versus the previous year was driven by higher operating losses and increased working capital.”
Cashwerkz. Cash management marketplace Cashwerkz suffered heavy losses and cash outflows during the December half and reported that it would have to raise capital to meet its commitments. It lost $3.6 million during the six months to December, following a loss of $7.3 million in the 2018/19 year.
Net operating cash outflow was $2.8 million. The company has cash and cash equivalents of $2.3 million remaining.
The financial report says: “The ability of the group to continue as a going concern is principally dependent upon receiving additional funding support and managing cash flow in line with available funds.”
Since then the company has responded by reporting that it has established a pilot program with comparison site Mozo to offer term deposits via the Mozo platform. And it has an agreement to deliver its term deposit and at-call deposit services to JB Were advisers.
Cashwerkz executive chair John Nantes says the deals were an endorsement of the company’s business model. “They have done their due diligence.”
Cashwerkz has $1.08 billion of investor balances on its platform, which are invested in a range of bank term deposit and at-call accounts. More than 4000 investments were made on the platform last year.
Rent.com.au. Rental property website operator and aspiring rental payments processor Rent.com.au will push ahead with the development of its RentPay business, despite having to scale back its capital raising plans to fund the initiative.
Last month, the company announced that it has entered into a partnership with payment services provider Novatti to develop a rental payment service.
The plan is for Novatti to integrate its payment technology into the Rent.com.au’s subsidiary RentPay to provide an automated rental payments platform for tenants and agents. It will include administrative support for agents, such as automated missed-payments communications.
On the capital side, Novatti will acquire a 2.5 per cent shareholding in Rent.com.au’s subsidiary RentPay Technology Pty Ltd for A$250,000, with an option to increase the stake to 10 per cent.
And Rent.com.au launched a non-renounceable rights issue, seeking $2.9 million of equity capital for RentPay product development and marketing.
On Friday, the company announced that it had cancelled the rights issue. Instead, it made a placement to existing shareholders, raising $750,000.
Rent.com.au chief executive Greg Baurer said in a statement: “Given the volatility and uncertainty affecting the sharemarket, we have decided to conduct a smaller placement to current major supporters of the business, which we believe is sufficient to get RentPay launched.
FlexiGroup. Finance company FlexiGroup announced that it had secured an additional $75 million of committed wholesale funding from a major domestic bank, with the facility extended for a further two years.
The company said it already had $674 million in undrawn, committed wholesale funding facilities provided by a range of banks.
It also has $103 million of undrawn corporate debt facilities.