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Buy-now pay-later (BNPL) company Zip Co (ASX: ZIP) continues to wind down the operations of its Zip Business Capital ANZ subsidiary after reaching a deal to sell its loans business to Prospa (ASX: PGL) for $15.6 million.
Zip confirmed it was looking to close its small-to-medium enterprise (SME) lending business in May last year, at a time when the broader group had been shutting down underperforming divisions including BNPL offerings in South Africa as well as Central and Eastern Europe.
According to Zip Co's December quarter results released today - which included a 26.1 per cent lift in revenue to $225.6 million - the Zip Business subsidiary contributed $2 million in the quarter, or less than 1 per cent of the total.
Prospa, Australia's largest online lender to small business, will pay for the acquisition from existing warehouse funding arrangements and expects to settle this week.
The acquisition comprises all of Zip’s remaining performing Australian business loans, equivalent to approximately $18.4 million of commercial loans to approximately 370 small businesses.
Zip has held the business since acquiring Spotcap Australia and New Zealand for $8.8 million in 2020, which was rebranded the following year.
"We are pleased to acquire the high-performing Zip Business loan portfolio, ensuring that the 370 small businesses can continue to get the financial support they need on the Prospa platform," says Prospa chief executive officer Greg Moshal, who co-founded the business with Beau Bertoli in 2012 before eventually listing it on the ASX in 2019.
"The acquisition reflects our continued commitment to supporting Australian small businesses with tailored finance for their needs."
At Prospa's annual general meeting (AGM) in November, Moshal said the company's focus in FY24 would be on improving the credit performance of the loan book while generating profitable growth, after clocking up $58 million economic credit loss (ECL) provision in FY23 as a challenging environment put business loan customers under strain.
"We anticipate economic uncertainty impacting the small business sectors in Australia and New Zealand will continue for some time," Moshal said at the AGM.
"Leveraging our dynamic credit decision-making capability to make quick and decisive setting changes to optimise commercial and customer outcomes will be more important than ever.
"We will monitor, and if necessary, adjust credit risk settings further, to support continued improvement in the credit quality of our loan book.
"In parallel, we will continue to deliver on our strategic roadmap through the re-platforming program, migrating customers off legacy systems, and expanding our capital product reach."
Investors on both sides of the transaction reacted differently, with Prospa shares down 5.26 per cent at $0.36 the time of writing, while Zip Co shares are up 4.23 per cent at $0.74.
However, Prospa is less than one tenth of the size of Zip Co, and the latter also announced earnings for the December half would be in the range of $29-33 million, representing a significant turnaround on a loss of $33.2 million in the December half of 2022.
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