Margin compression hits humm’s BNPL business

John Kavanagh

Humm group is pushing ahead aggressively with its plan to be a global force in the buy now pay later market at the same time as its BNPL business is generating a lower return because of competitive forces compressing margins.

humm (formerly Flexigroup) reported a 13.8 per cent increase in sales volume to A$473 million on its BNPL products in the six months to December but gross income fell 0.5 per cent to $60.6 million.

The company said the fall in gross income was due to margin compression.

humm’s BNPL division contributed $3.1 million to group cash profit of $43.4 million for the half. The BNPL profit was down 39.2 per cent from $5.1 million in the previous corresponding period, as the company invested in new products and markets.

humm plans to enter the United Kingdom and Canadian markets later this year and has already started signing up merchants.

Earlier this week it launched hummpro, a BNPL product for SMEs.

Speaking at the company’s investor presentation yesterday, humm chief executive Rebecca James was upbeat about the prospects for the BNPL business but had nothing to say about the margin compression and what that might mean for the profitability of these initiatives.

Overall, the company reported net profit of $38.6 million for the half – up 15.9 per cent over the previous corresponding period. After adjusting for amortisation costs, share based payments and proceeds of the sale of a business, the cash profit was $43.4 million – up 25.8 per cent.

New Zealand cards was the biggest contributor to earnings, with a cash profit of $14.3 million, while commercial and leasing contributed $13.8 million and Australia cards contributed $12.2 million.

There were problems in each of these businesses. Australia cards volume was down due to COVID-19 restrictions and gross income fell 17 per cent as interest bearing receivables declined. The division’s cash profit grew but this was largely thanks to a big reduction in the impairment charge. New Zealand cards volume also fell.

Commercial and leasing volume was up but the margin was down.