Thank you. Thank you. And on behalf of the Zit Board, I'd like to welcome everyone to Zitko's First Half fiscal 2021 results investor presentation. In the room with me today is Peter Gray, Co Founder and Chief Operating Officer. I also have with me Martin Brook, our Chief Financial Officer.
I have Tommy Mermelstein, our Chief Strategy Officer, and we're pleased to also be hosting the CEOs from the U. S, QuadPay founders, Adam Ezra and Brad Lindenberg. Before we kick off, I'd also like to thank the hard efforts of the entire Zif team, our Zifsters. We'd also like to thank retailers and of course our customers and loyal shareholders for what has been a bumper half. And also before we I'd like to formally welcome Diane Smith Gander as our new Chair, very excited to have her on board and also say farewell to Philip Crutchfield, who's been a fantastic mentor, adviser to us and has steered this ship for the last 5 years.
And finally, welcome Pippa Downs as well as a Non Executive Director, who shares our Audit and Risk Committee. Today, I'll go through a few sections, quick update on Ziv. I will then talk about the U. S, which is a real growth engine for the business, followed by look at Australia and New Zealand, then look at the globe and some of the other initiatives. I'll then hand over to Martin Brook to look at the financial results and then we'll talk about what's next.
So if we just flick to Page 4, a quick summary refresher on Zip. Our purpose is the freedom to own it. And that really speaks to quite a few vectors for us here at Zif, customers, merchants, responsibility and our culture. It gives customers the freedom to own the dress, own the moment, own the experience, own their financial well-being. It talks to merchants where we give them the freedom to own it, particularly the small business community where they can grow their top line, get another customer and now access working capital from Zif.
We also own the responsibilities that come with issuing microcredit and financial services in real time. And 4th, which we are most excited about and we see as a big differentiator is the culture, the freedom to own it, where we build up an organization of single threaded owners who are empowered, run different parts of the org. We reward with the Zifco stock, we feel like business owners and accelerate together. And our mission is to be the 1st payment choice everywhere and every day, and we've clearly got a long way to go. On Slide 5, I'd just like to talk to 5 key differentiators about the Zif business versus the peer set out there.
First of all, our product. We offer interest free installments for both short and long dated periods and that really allows us to play across any category set globally. And we are on a roadmap this year to deliver feature parity across all of our markets. The second big differentiator is we derive income both from customers and merchants. And that really gives us the ability to again play in any category, any gross profit category, but our customer fee is always fair, simple, transparent and easy to understand and we have proof points on that.
The business model is both a closed loop network where we acquire customers directly and have directly integrated commercial relationships, but we also have OpenLoop and that allows customers to shop everywhere, which drives havoc and we'll talk to that later today. 4th, we are actually one of very few global BNPL players where a single merchant can integrate with us and we can open up multiple markets, which is really important as commerce gets globalized. And finally, risk and financial responsibility is at our core. Since inception, we've done identity and credit checks, and it's our superior risk decisioning and investment in these characteristics that enables us to grow quickly, but also manage the risk ahead. On Slide 6 is just a quick summary.
We finished December run rating just over $7,500,000,000 and annualized revenue of $480,000,000 And what's really interesting if you look at the geographic spread is that we have 4 core markets being the U. S, Australia, New Zealand and we've just launched in the UK. We also have a number of strategic investments, which are forming part of our network and that we can access and offer up to merchants whether it's in Eastern Europe, the Middle East or South Africa.
Now if
we turn to Slide 7, we started out the year really with 4 key strategic priorities focused on payments acceptance, app engagement, global expansion and Zip Business. And so just a quick update on how we're tracking to those four priorities. On payments acceptance, particularly in Australia, we became a principal issue with Visa and we were able to really unlock the in store potential. And in late October. We finished that project and customers can now use the Zif wallet to shop everywhere in physical and that's really stepped up our engagement rates and we'll talk to that.
The U. S. Has already had this functionality. In the U. S.
As well. They rolled out a Chrome extension, which allowed the shop anywhere experience to be delivered via web as well as the app and we'll kind of talk about that. And through a mixture of these techniques, we're not just available everywhere, but also driving a lot of everyday spend, which is driving havoc. And pleasingly, we grew the merchant base 73% year on year. On app engagement, it was really a standout for the half.
Australia became in Australia, we became the number one downloaded BNPL app, and that carried through into January, which is a great result for us with a relentless focus on app and UX over the last few years. And in the U. S, the QuadPay app was the 2nd most downloaded alt credit app during the holiday season with over 2,800,000 app downloads in the half and the customer base grew to 5.7. On Global, We obviously completed the QuadPay acquisition in late August with September being the 1st month and that's been a great story. We'll talk more about that.
We launched in the UK in December and that's really exciting, pipeline is building, we'll talk about that shortly. And we made a number of strategic minority investments around the globe, underpinned by our new markets team. And then finally, Zifbusiness, This was really in beta post COVID and a great team just working on what our product fit was going to be. That launched towards the end of last year under the rebranded Zifbusiness, which talk about and secure 2 exciting partnerships in Facebook and eBay. So really, really good results there by the team.
If we turn to Slide 8, I think if we just go through the quick highlights, we've seen again year over year growth across our key metrics of transaction volume, revenue and customers north of 100%. And as we've always said, growth really underpins our business model to take advantage of the BNPL opportunity globally. Quadpay, we completed in August as an entry into the U. S. To accelerate growth.
And just since the beginning of September, that the TTV for the U. S. Has grown over 130%, which is just absolutely remarkable, and has been transformational for our business. We bolster the Board with 2 key appointments, which I spoke about earlier. Diane and Pippa, very excited to be working with them.
We also During the half, we raised $176,000,000 via an institutional placement and a share purchase plan. And really that was to fuel our global growth with a large chunk of that going into the U. S. And again, we had really outstanding support from our loyal retailer base, and we're very pleased to accept all of these share purchase plans over subscriptions. And again, pleased to see that the price is trading well north of where they participated.
We spoke about product innovation, quite a few highlights there, which we spoke about and key partnerships in Australia. Harvey Norman join the platform and domain. We've also secured boohoo, JD Sports and we'll get into the merchant list a little bit later on. Just turning over to Slide 9. What we've tried to do here is take another approach to how we show unit economics.
And this really is in line with our peers, not just here, but also in the U. S. And it really looks at unit economics on a per transaction basis. What is revenue as a percentage of transaction volume less cost of sales, which are the transaction costs being processing data and losses to get to what we call a cash gross profit as a percent of TTV, what I call it, a net transaction margin or transaction margin over in the U. S.
And I think pleasingly, When you look here, transaction volume grew 141% year on year. The revenue of $159,800,000 represented just shy of 6.9% of TTV. And if you go down, we have a margin of about 3.71%. And I think what you've seen there in the movement year on year is the shift in the business mix and also some exposure to more everyday categories. That's a really pleasing result and kind of shows the the disciplined unit economics that will be underpinning the growth of our business.
Also, what's pleasing to note is cash EBITDA was positive, which is really a great result considering that we are we have a mature Aussie business, but also investing for growth globally. And Martin will talk more in detail about our financial results. Moving over to Slide 10, what we can see here is really a proven ability to execute across the globe. We finished the half with $2,300,000,000 in transaction volume and that's on an actual basis, that's only including quadpay transactions from the 1st September on a pro form a that was $2,500,000,000 Revenue, We finished the half at just shy of $160,000,000 which is a great result. If you look at our fiscal 2020, That entire year was only $160,000,000 and really a great result there.
The U. S. Though clearly is becoming much larger share of the business. Just in December, they contributed 40% of TTV and we expect them to overtake the Australian side very, very soon. Also pleasingly, transactions were up.
That number is actually a pro form a number. If you look at our word release, you can see the actuals of $14,600,000 transactions for the half. It's a really strong engagement. And then finally on Slide 11, this is really an interesting story here where Since the acquisition of QuadPay in late August, beginning of September, you can really see a step change in the business. Repayments have really accelerated from we've been issuing installments from about 6 weeks to 48 months with an average of about 6 months with assets on the balance sheet.
And what you can really see here is a shortening of 6 months all the way down to 3, really being driven by the mix of the U. S. Shorter day of installment, but also in Australia, post COVID, better UX, better repayment flexibility and that's having a much more efficient effect on our capital recycle and that should underpin our future growth. Also, if you look on the return on capital, our revenue yield, which is revenue as a function of average receivables, has really stepped up from 16% to 25%, again showing really strong return on capital. So when you combine our net transaction margin that we spoke about on the earlier page and this improved capital recycling.
We think we are in a really good place to accelerate growth, drive our operating leverage and future economics. And then finally on Slide 12, as we always say, even though we are 7 years in, it really feels like we are only getting started. BNPL penetration is about 1.6 percent online. And when you look in mature markets, that's about 20%. So a long, long way to go.
And what we see across our business is 80% of our global customers our Millennials and Gen Z, which will really become the purchasing power leaders over the next 10 years. And so we've got a really exciting long term road ahead. Jumping into the U. S. On Slide 14, really great results right across all of the key metrics, almost 200% up on most of the key metrics.
The pro form a TTV was up 2.5x year on year to just under $1,000,000,000 Customer numbers grew to 3 point $2,000,000 again, up twice year on year. And the pro form a revenue, which is very exciting, grew 2.5 times year on year, so just under $70,000,000 And even though December was a real standout for the U. S. Business, If you look in the January data, you're showing us that on a TTV basis, the business is almost back to November level. So really good start to calendar 2021.
The business continues to deliver market leading unit economics with net transaction margins north of 2%, and the app, I'm going to talk about a little bit later is a really exciting story. Slide 15 really talks Offering buy now, pay data is important, but you have to offer across all user journeys. And in the U. S, you can now pay later at checkout integrated, You can pay later anywhere in store. You can pay later anywhere online with merchants that we aren't integrated with, which we'll talk to shortly and you can integrate you can pay anywhere using the Chrome extension, which enables virtual cards issued in the checkout and is showing really strong, strong promise.
The merchant base continues to expand. Retailers are critical to the business model and we saw names like GameStop, which has obviously been in the press. And we see another big jump last night, but a really great business and great fit for our buy now, pay later, Fanatics. And we've just rolled out with Sunglass Hut in store, which is showing really strong, strong promise. So retail is a key and what we're finding is that The global footprint is really helping out our sales effectiveness and the pipeline is really exciting.
And of course, strategic partnerships are also a key part of the business model, how we get to not just one to one merchants, but one to many. And we have a number of relationships here that we are working with, such as Fiserv and others are going to be a key part of our growth story over the coming years. And Slide 1718 really talk to the exciting business model that we have over in the U. S. A really strong ability to acquire customers directly by and organically via the app as well as through merchants.
These customers come into the app, They're able to then shop and we're able to introduce and refer customers to our integrated partners, driving incremental transactions. But at the same time, we're able to offer customers places to shop outside the closed network, which is driving habit and driving preference. We can then use that data to go back in and talk to merchants around a directly acquired relationship. This is really starting to beat itself. It's driving really exciting transactions per monthly transacting user and that's really underpinning the engagement model.
And Slide 2018 just quickly shows you the incredible growth in the app. Huge investment has gone into the app with beautiful UX, a lot of experimentation and this organic growth is really providing real strong moat around the business. And then finally, with regards to the app on Slide 2019. The Quad plan had over 2,000,000,000 downloads just in the half and pleasingly reached 15 in the shopping category during the shopping season on iOS. So really bumping into some of the biggest names and really a testament to the work and laser focus of the U.
S. Team. And engagement via the app is up over 90% year on year. So real good leading indicators to what's ahead. And then finally, just on credit performance, I think these two charts really tell a good story.
Returning customers, which obviously deliver improved loss rate over time, has jumped from just north of 50% to 85% of monthly transactions. And so if you kind of contrast that, in Australia by way of comparison, we are over 95%. And as a result of that, we're seeing really improved loss curves, charge offs as a function of monthly transaction volume really coming down. And again, testament to the Chief Risk Officer, Costa over there and the decision technology that really underpins how customers are onboarded, how risk is discerned. And you can see as well on the chart how COVID was really dealt with being able to respond in real time to the portfolio and the application funnel.
Moving across to ANZ, really pleased with the results in ANZ with the TTV up close to 60% to 1,500,000,000 and really strong metrics results across all of the metrics. We had more customers join the platform than ever, which talks to the compounding network effects. And our customers completed 2,500,000 transactions just in the month of December, which was up 140% year on year, again showing that customers that are joining the network are becoming much more engaged. They're coming into a world with better merchants and a better app. Jumping to I might skip over Slides 23 and 24 and just say By way of reminder, we are unique in Australia being able to offer interest free installments for small dollar and long duration, which is really important to and we can play in any category.
We also signed a number of great names over the period, including Adore Beauty and Harvey Norman. The great results for the team on Slide 25 was that the Ziv app was the most downloaded BNPL app in Australia, which is a great title to have grabbed. And you can see just on the right that monthly downloads have really scaled. And I think for us, we called out the app as a centerpiece to the relationship and we see payments as the access point for the relationship with customers and it's really important that we continue to remain laser focused on that asset. And on Slide 26, what's really interesting is that Each year, we try to do better.
We try to make sure that customers that are joining the Zif platform are more engaged. And we can see 70% growth in transactions per monthly transacting user year over year from about 2x per month to 3.5x per month, which is just north of 40 transactions if you calculate that on an annual basis. So we are becoming more and more important to our customers. Revenue as well for cohorts is getting better year on year in 2020. Look, it was slightly up, but really what we're seeing here is that engagement has been through the roof.
And as I spoke about earlier, payments is the access point to us and the customer. The more times that customers are using us, the more important we become and the more valuable and the greater the LTV or long term value is of the customer. And then finally on credit performance, again, our credit decisioning engine, which has been a consistent focus for us really since we started 7 years ago. What began as a rules based engine is now full machine learning model, particularly up to a few $1,000 and then we go all out to 2000000, 30000. And really, this is the ceiling engine that digests conventional and nonconventional data is showing improved cohort performance as we look from 2017 to 2020, and pleasingly net bad debt of 1 point 9%, which shows our ability to really control the front end, control the portfolio and during COVID that was really tested.
So a great result by our credit team and our data and risk teams. And then moving over just to Slide 4, which encapsulates global Zifbusiness and pocketbook. Zip Business was launched really towards the end of last year under the brand Zip Business. The product that we have now gone to market with is Ziftrade and we were very pleased to sign both Facebook and eBay late last year. With Facebook, small businesses can now advertise now and pay later.
And we have a great team behind this part of the business. Road ahead over the next 6 months is incredibly exciting. The daily engagement rates and acquisition rates are all heading in the right direction, and we expect to report on those results later this year. So most of the activities happening in the everyday buy now, pay later up to about $5,000 The team is looking to also roll out a Trade Plus, so slightly larger SMEs that might be looking for working capital and we're really excited about the road ahead for Zifbusiness. It also really talks to the ecosystem play that we are trying to build, where sellers can offer Zif as a payment acceptance, but they themselves can also become Zif buyers and hopefully we can get more commerce happening around the Zif ecosystem.
Moving on to Slide 30, Zif launched officially in the UK in December and really off to a great start if you look at both December January. We signed a couple of sorry, just over 100 small merchants, which was good to get things going. The pleasing team has been able to sign some real marquee names in boohoo, JD, Cotton On and some of us were starting to see as well the ability to port our U. S. Merchants into the U.
K, similarly our Aussie merchants into the U. K. So really when we look at the go forward, So a great technology platform now in the UK, which is on the same technology stack that QuadPay has built and all of the feature sets that we have in the U. S. Will be brought across to the U.
K, which enables great app, great sign up, virtual card and shopping everywhere as well as closed loop networks and the global and the retailer pipeline is very, very exciting. Anthony, Drew and the team is doing a fantastic job and we look forward to reporting updates on the UK throughout the calendar 2021. Last year under our Chief Strategy and Global Officer, Tommy Mermelstein. We established a new markets function, which was a team specifically developed to look at both opportunistic and strategic expansion opportunities that were behind the QuadPay deal, behind getting UK going and it's a team that has regulatory product, tech, risk and market launches. We've done a range of things this year, which really exciting.
We made a number of minority investments with great founding teams in Eastern Europe with Twisto, and they have the ability to passport across the EU. We also made a small investment in the Middle East, which we see as a really exciting region, again, a great founding team. And we've just done to mobilize a small team in Canada. But really the purpose there, given that the QuadPay stack just moves really nicely into that region, is really to support our U. S.
Business to help us acquire and retain our U. S. Merchants, and so we're looking for a soft launch there. As well, we've moved our global integrations into new markets that a single merchant can integrate with us once, and we can now open up multiple markets, which is increasingly becoming exciting to more global retailers. On Slide 32, poker book is obviously a key part of our product set up to 812,000 users.
It's a free app that allows customers to track budget and save. Our view has always been that some customers are eligible for credit, Some customers don't want credit, and we have a duty of responsibility to engage and provide market leading experiences for them. And you'll see a lot more coming from this over the next year. That's it for a summary of the business, and obviously, we'll take questions later. But I'll now hand over to Martin Brook, our Chief Financial Officer.
Thanks, Larry. So starting with Slide number 34. If we take a look at our information by segment, We stayed between Australia and Global and Zip Business. And the exciting thing to see is that the U. S, which is part
of the
global segment, is already 38% of our revenue, and that's with only 4 months of transactions going into there. Also, we previously said that we were to invest in growth while maintaining cash EBITDA positive in the AU business. And clearly, you can see that we've done that, generating a positive cash EBITDA of $3,100,000 and also an overall positive cash EBITDA of $200. Clearly, a strong result there. Obviously, this is a small part of the group at the moment, but strong growth aspirations for the next half.
Turning now to Slide 35. We touched on the operating income previously. Operating income now has been split between portfolio income and transactional income to reflect the different revenue streams acquired and also the new revenue streams at Zivko. Transaction income really relates to affiliate revenue interchange and service fees. Other portfolio income is the traditional merchant fees, establishment fees, a monthly fee recognized over a only repayment profile, whereas the transactional income is recognized when earned.
Cash cost of sales, dollars 73,700,000 Obviously, the inclusion of Quad makes a huge difference to these numbers. But key things to point out here is that on the interest side, the reduction in the PBMW by about 1% over the year has flowed through into our average interest costs. The bank fees and data costs, which are pretty significant. The volumes there give us a great opportunity to investigate reductions in the unit prices in line with those volumes on both the local and global scale. Healthy unit economics, as we've talked previously reflecting the cash gross profit of 54% up from 52% in the previous year.
We covered a little on the bad debt side on previous slides. On the operating cost side, increased by $51,500,000 predominantly due to the acquisition of Quad. We're increasing headcount to scale the business globally. And obviously, we have an increased marketing cost to drive not only transaction volumes across all markets in the seasonally strongest quarter, We also incurred additional cost in driving the launch of Tappan Zips. Don't forget, sales growth.
We hit a cash EBITDA of 0.2% against 4.5% in the previous year, as I kind of covered on the previous slide. If we look at the in terms of the provision for expected credit loss, important thing to note there is that we have reduced our overall provision from 4.4% to 3.8% across the group. And that largely reflects the improvement in roll rates in the Australian business, slightly faster repayment profile in Zip Money and a significant reduction in number of hardships in the Zip business portfolio. We have maintained the economic overlay at the same level as it was stuck at June, which obviously reflected the economic conditions at the time. Just turning over to Page 36.
Couple of key things to point out here, significant increase in share based payments, largely relating to the on the acquisition of Quad. The shareholders approved some tenure and performance shares. Those tenure and performance shares are best obviously based on tenure and the performance of the business. Very pleased to announce that the first hurdle on the performance share side has been achieved and there will be $15,000,000 in shares issued no later than September year. As the tenure and performance shares are all linked to ongoing employment, they need to be reported as part of the P and L account I'm not really considered part of the cost of investment in Quad.
Fair value loss and the adjustment on Quad. We look at in the next couple of slides. So if you look at the slide, Slide 37, We recorded a QuadPay acquisition adjustment of net of some 306,000,000 If you look at the this obviously has no bearing on cash or the point based business, but obviously the achievement of the 1st pro form a total suggests that the business is going very strongly and it obviously is. When we were negotiating Quad prior to COVID hitting in March, We were obviously in ongoing discussions. When COVID hit, the share price of ZIIP fell quite considerably.
The other U. S. Exchange rate deteriorated. And in order to remove those market forces from the discussions, we agreed a share ratio with the vendors of Quad. That share ratio being essentially the shares would be issued equal to 23.3% of the issued share capital at completion.
So that essentially fixed the number of shares that we were going to be issuing and all that was left was the price. Accounting standards demand that we use the price at the date shareholders approve the transaction, which was the 1st call was at a share price of $9.16 for the purposes of recording the initial purchase price, but there is no choice. That is considered fair value. If you look at the slide or the graph on Slide 37, I think it would be pretty there wouldn't be many people who would think that $916 was a fair value. So that was our view.
So in conjunction with independent valuers, We looked at volume weighted average pricing up to the date of the transaction and formed a view that a fair value equivalent to some $650,000,000 was much more appropriate. In conjunction with the same value adjustment, we also had value we value our existing 14.09 percent shareholding. So if you look at the sequence, step 1 on acquisition, we revalued our 14.0 percent up to $9.16 which required us to report a fair value adjustment of $109,000,000 And then the day after, we revalued We took a share value adjustment of $415,900,000 to reflect a fair value equivalent of $6.50 as opposed to the $9.16 For those of you who are looking to multiply the number of shares issued by the difference between the 9.16 and 6.50, that won't work because That adjustment applies to all of the consideration for Pay for Quad, which was the shares issued, which was the replacement options replacement options issued to both employees and non employees. So net adjustments of $306,000,000 purely accounting, no impact on the business. Turning on to Page 38.
When we were when we announced the or looking to announce the acquisition of Quad, it was very important that we had funding to go with it. At the time, we looked at various different options. Our share price was down at 3.70 The market for equity was not that great, quite turbulent. Looking at those options, we came to the view that the issue of convertible notes and warrants will have a much less dilutive impact on shareholders, and therefore, we issued $100,000,000 in convertible notes with an issue with initial conversion price of 53 at $100,000,000 in warrants with an exercise of price of $5.15 both significant to the prevailing share, significant premiums to the prevailing share price. When we account for these things in the convertible note, you have to split it between a debt and a embedded derivative.
The warrants are a derivative, and we have to value the embedded derivative and the convertible notes and the warrants at fair value at each reporting date. In coming up without value at December, using a share price of $5.29 we ended up having to report a fair value loss of $33,200,000 It should be noted that the fair value is very sensitive to our share price. So if we get to double the share price between now 30 June, at 30 June, it's at sort of 10.60 we will be required to book a further fair value adjustment to that point of around $160,000,000 so fairly volatile. Turning on to the balance sheet on 39, obviously, very much influenced by the addition of Quad. Significant cash on the balance sheet at December, largely reflecting the capital raise just prior to the end of the half year.
Normally, we would have as much of money as we can in the funding vehicles. Obviously, it's better for us to use our money to fund receivables rather than draw down on our financiers. But obviously, without coming through fairly close to the end of the year, We were unable to do that. The customer receivable numbers are always the biggest number on the balance sheet, supported by the increase in borrowings further down down on the balance sheet. Investments that we made in Spotty, Twisto, all coming through in those investments lines.
Other big things to call out is on the acquisition of Quad. We had to value acquired intangible assets, which we have done on a provisional basis. So that will be finalized at 30 June. And that provisionally, we've recognized a $253,700,000 of acquired intangibles, which comprise the brand name, the software platform and partner relationships.
So they're
all valued as at the acquisition date. The other big item on the balance sheet, goodwill, obviously, Now related predominantly to the goodwill arising on the acquisition of Cord, bringing the difference between the purchase price post adjustment and the acquired net assets acquired intangible net assets and acquired assets. And that goodwill number is around sort of 730 odd,000,000 Looking further down the balance sheet, obviously, with bigger volumes across global businesses, the trade and other payables, we slightly pay to merchants, and it's grown significantly. The financial liabilities is the debt host and the fair value of the embedded derivatives in the notes on $233,600,000 deferred tax liability, the rising on those acquired intangible assets. So just moving on to the cash flow, obviously, a positive cash flow, dollars 13,900,000 $20,000,000 if you exclude the acquisition costs, up from 6.7% in the previous year.
Key callouts, I think, on there.
We
because we paid quite large in shares, acquiring COVID brought a net $26,000,000 onto the Insta Group. Rolling down the proceeds, obviously, from the issue of the convertible notes, dollars 96,800,000 that's net of costs. We had a capital raise where we received $120,000,000 in the year and the money from the share proceeds came through in January. That's obviously not reflected in those numbers, and overall, an increase in cash of $187,200,000 compared to the position at June. Moving to the funding update, obviously, you're well placed to support our growth plans with the funding programs in place, the key call out there.
Within our consumer receivables portfolio in Australia, we have variable funding of about $873,000,000 that enables us to generate new receivables from both new and existing customers. We grow that core. We then term it out to the rated markets, repay the variable funding providers, and then we can repeat the process. So That's a great position to be in within our most significant funding position. The excellent performance of our receivables portfolio, and we were able to receive a 2 notch improvement in the rating of our senior notes, not quite at AAA yet, but we would expect to get there shortly.
And overall, we're able to get a 10 basis point reduction in the average rate across that transaction compared to the first transaction. We have $150,000,000 facility in the U. S. With Goldman Sachs because of the nature of the seasonality of the business. Obviously, huge volumes over Black FridayCyber Monday, repaid by the time we get to January, and we were able to repay US25 $1,000,000 of the drawn amount in January.
Final thing to point out there is that we talked a little bit about the expectations for the Ziv Business segment to grow in the next 6 months. We established a $100,000,000 facility with Victory Park Capital 2 in the half to fund bank growth. And you may recall that they were the initial funders to the Zit business back in the day, back in 2015. So I have a long and healthy relationship with those guys. On that note, I'll Pass back to Larry.
Thank you, Martin. And just finally, Section 6, what's ahead. Yes, half year 'twenty one was our biggest result yet and it is providing strong momentum into the second half. And I think we're going into it with really strong tailwinds. We've got a great head start in the buying out, pay later space and a global footprint ready to take charge.
The flight to online, which we saw accelerate last year as a result of the pandemic, we really believe is here to stay. The aversion to the credit card is continuing at pace. It's happened significantly over here in Australia. We're seeing these trends globally. And we would argue that increased competition is increasing retail awareness, which actually is a huge net positive for us given our footprint globally.
And of course, we are competing against the really slow banks. So I think we're in a really, really good place as long as we keep innovating and moving at zip speed. The U. S. Acquisition was clearly transformational to Zif and as we have global momentum, there is going to be a huge focus in the U.
S, U. S, U. S, U. S, as the Board says. We also like to continue looking for opportunities and continue to accelerate our growth in the UK.
We're going to remain focused on those 4 key strategic priorities really at the top, which is continue the payments acceptance route, which is around getting customers TRANZACT everywhere and every day through an increase in closed loop network. We need to continue to drive app engagement that is the heart of the relationship and we remain focused on that. And we spoke about global expansion and the business. There'll be a big focus on global sales. We have a great pipeline.
We're in discussion with a lot of great names and our ability to offer not just Australia, but the U. S, UK and other regions is increasingly favorable for these retailers, and we look forward to announcing some names more names over the coming period. And while we focus on growth, as we've kind of shown on the slide around transaction margin, to make sure that the transaction margins remain healthy, unit economics remains sustainable. And as we invest in fixed costs, We see the operating leverage come through as volume starts to expand. So we are really excited about the road ahead and thank you for listening.
We'll now hand over to the moderator for questions.
Your first question comes from Jonathan Higgins with Shawn Partners. Please go ahead.
Hi, guys. Obviously, a massive first half of twenty twenty one, a lot of initiatives launched. Just interested just on a couple of points. Firstly, Just around the app based usage, the metrics and sort of the customer adoption in the U. S, we're seeing average balances and average transaction sizes in Australia rising and the U.
S. Arising materially as well as you provided some new data on sort of repeat customers in the U. S. That looks pretty high around that 80 90% level. Have you surprised as to the level of uptake and adoption in the U.
S? And secondly, just talk us through just like
what you are seeing in
the U. S. From a point of
view. Yes, thanks for that. We have Brandon and Adam in the room, so one of them will take the U. S. Question.
Look, I
don't think we're particularly surprised with the uptake. Our strategy from the outset has really been about enabling buy now, pay later anywhere. And the acceptance size of the Visa network obviously allows consumers to shop wherever they want. And that broadness of reach allows for the repeat purchase rates to be high as they can use it when and wherever they want. And so I think the usage rates are in line with what we expect.
And we also expect that to grow over time as people become more used to shopping with Quotpay.
And a question on the With the second question, Jono, just the competitive landscape.
Yes. Just talk us through just the competitive landscape and how it's playing out in the U. S. From your view.
Look, I think we're in
a very large market. We truly feel that the market size is very large and the penetration is low, as you can see in the deck. There's a lot of runway there. There's obviously a number of competitors playing. I think there are differentiated approaches.
Some of the key players only have the like integrated network whereas we have both sides and the flywheel and that really is driving a lot of the performance that you're seeing. So yes, I think we're in
a great position. Just add, I think if you look at our product strategy globally, it is differentiated. So the ability to offer short and long term installments that does resonate with the merchants and gets us alongside some of the peers. The ability to derive income from merchant and customer means we can also play in all gross profit categories. So there's a lot of categories that other players and the global lens, the ability to offer up multiple markets.
So as I said earlier, the pipeline is looking even though competitive pressure out there, The pipeline is looking great and merchant conversions are accelerating.
Two last ones for me, just waving on to that question. Just in regards to the product portfolio, you are running with a single product internationally or mainly a single product. You've got a significant portfolio of other longer duration Products and various sort of like interest free and buy now, pay later products. Are you able to sort of give us your thinking around the suitability of those products into the international market and When you'd look to take them there?
Yes. I think, as we've always said, being able to offer an interest installment, whether it's $160 pair of shoes or a $2,000 iPhone is really important, and we've proven that out here in Australia. Globally, Horizon 1 has been paying for, but we're actively working to deliver feature parity across all regions where you can pay in 3, pay in 6. And I think there's a lot of proof points out there of why longer term installments are really important and make a huge difference for a lot of big retailers out there. So we'll be working on those products to add to the portfolio, but more on the consumer side.
So don't expect to see business go global anytime soon. It's still very much in a beta phase over here in Australia. We have to earn our stripes, but definitely focused on short and long term installments in all markets. The U. S.
Is working on that right now, UK as well. And you'll see some announcements from us throughout the year.
Last one for me guys, just on the unit economics. I know it's a real focus for you. Unit economics Held up really well through the half and you've also delivered a flat result on the cash EBITDA front, which I think was probably a little bit surprising for us with the growth. Yes, I would just talk us through just what we should expect around the gross margins into the second half and onwards. I don't think you've split out Quad versus Zip, but Quad obviously effectively has a higher turn and higher margin there.
It just looks like gross margins are sort of coming in ahead of expectations and should we think about that moving forward?
Yes, I think thanks for the question, Jono. I think we'd be expecting to sustain or improve gross margins over the second half.
I think we call out that's one of the strengths of our model and differentiated approach, Jono. And I think we expect that to continue to hold and remain a competitive differentiator of the Zifco's globally.
Your next question comes from Bill Chippendale with Ord Minett. Please go ahead.
Hi, guys. Thanks for your time. A couple of questions from me. Firstly, probably for Brad and Adam. I just see you specifically mentioned the Enguitt product
Sorry, Phil. Sorry, Phil. Yes. You sound a bit blurred. Are you able to maybe speak clearly into the microphone.
Can you hear me? Go again. Go again, Phil.
So my first question just relates to the any yes, are you there?
Yes, go for it.
Okay. Just on the Anywhere product in the U. S, so a question for Brad and Adam. You mentioned that was a real focus for you guys. I'm just wondering what percentage of your U.
S. TTV comes from the Anywhere product against The relationships where you've got direct line of sight into a merchant like Fashion Nova, etcetera.
Thanks for
the question. Look, we whilst we've spoken about the app, we're very focused on the integrated partner network. The business is doing very well, bringing on board a number of well regarded enterprise merchants. The merchant base is growing rapidly. These two models work hand in hand together.
We just based on the performance that downloads in the App Store, that's really driving A lot of first time new users into the app, which then go into our integrated network and benefit our merchant base. So look, I don't want to be thinking that we're not doing well on the merchant front. That is remaining a huge focus for us. Core model is very important. The 2 models are working nicely together.
And there's been a big uptick as well just in the merchant sign ups as well over the last half. So it's merchants being onboarded on an accelerated path, a lot of investments going into automated onboarding and big names are now starting to join as well.
Okay, thanks. Just turning domestically, the increase in capital efficiency and the rate of turning the book in Australia, has that really been a function of increased usage with Zifco. Yes, just a lot of comment as to what's driven that domestic increase in efficiency.
I think it's been a function of a number of initiatives. Phil, we've certainly focused on our repayments as a service to our consumers, encouraging them Payback quicker and offering them more flexibility, understanding the overall benefit it has to that yield concept. So it's certainly been a significant area of focus that we have delivered through the app. So as much as the Zifpay's penetration through everyday spend categories, which typically might have a shorter duration in terms of the repayment profile for that type of usage. So it's probably the combination of a number of things.
Having said that, Ziv Money on the large
Just turning to Zifbe's, you've identified that as a specific area of focus for you over the next 12 months. I'd be interested in a self assessment of your progress with that rollout so far. And then just as Outside of the Observer, sorry, of the industry, we see a number of new players entering the space. Harman has recently announced I'm looking to that area as well, as well as more traditional sort of finances in this space. It does seem to be reasonably competitive.
And how do you plan to differentiate product into a new customer set really.
Yes, I think in answer to first part of the question, Phil, we're probably well behind where we had expected to be by now. Clearly, there's been a number of external factors that have It caused us to be a little bit slower to some of the targets we'd probably set ourselves internally. I think the Success in partnering with eBay and Facebook really are yet to pay dividends with regard to the accelerated customer adoption. We're completing levels of integration to provide a seamless onboarding process for small business customers into the competitive point that really will be one of the points of differentiation is our core competency of that customer That real time decision, be it for a limit of $3,000 or all the way up to $150,000 So the competitive peer set that you sort of touched on Don't necessarily have the existing relationships across their platform. They don't necessarily have the competency the risk assessment piece that really will allow us Provide great experiences for small businesses.
So there's a number of other initiatives that we're working on, which really will open up channels. We have a heavy focus on channels rather than individual retail relationships to deliver this customer acquisition piece. So probably slightly differentiated strategy with regard to some of the names that you mentioned. The likes of Facebook and eBay are just us getting started, a little bit slower in terms of the uptake because of external factors, but we're really hoping to deliver some strong growth there this half.
I think the others are coming from a very different world. We've got a network of tens of thousands where small businesses can actually check out and use their Zip Wallet and so you'll start to get that sort of compounding effect. And we're trying to build an ecosystem here where sellers can sign up in a few minutes, they can offer Zif at checkout, They can offer Zifco online and in store. They can also get a Zifco trade account, which is digital buy now, pay later. In the future, they'll be able to get settled into their account and then shop across the network when you start to get that sort of payments ecosystem.
I think the others are thinking about it very, very differently.
Okay, thanks. Last question from me is just on the banking side of things domestically. You guys have had pocketbook for a number of years now and that's Obviously, a well known budgeting tool. And we have seen others in the space announce intentions to launch bank accounts, not just domestically, but also Overseas, I sort of saw it in Germany is one example. Yes, I'd just be interested to know what you guys
Sorry, Phil, we can't I think we'll need to move on to the next questioner. Thanks,
Okay. Thank you. Your next question comes from Brendan Kerig with Macquarie. Please go ahead.
Good morning, gents. Just a couple of questions from me. Can we maybe start on the marketing side of things, so it makes Complete sense that you'd be investing a fair bit into marketing, but just wondering how we should be thinking about this line going forward as you're continuing to grow and how this will be fitting into your customer acquisition costs across all of your jurisdictions.
Just to we just had a bit of
audio issues here. Are you asking about how marketing costs are expected to trend over time?
Yes, effectively. I mean, obviously, there's been a reasonable step up, which you would expect given the move into the U. S. So, yes, I'm just trying to get a bit more of an understanding as to how that will be continuing to trend given the growth profile or given the growth profile you're targeting from
Yes, yes, yes. So I think, look, the way that we think about use of funds, a chunk of that is for marketing, both acquisition, but also a lot of retail partnerships. That's kind of where a lot of lock goes into. But very disciplined the teams are around What does that mean in terms of reengagement, in terms of customer acquisition costs? And if you just look at our channels versus the world of credit card, the tax are just miles and miles apart.
So I think as the surface area increases, you will see marketing spend increase, but done in a very disciplined way where we identify channels, retail partners and we were ensuring we are signing up the right number of customers. Those customers are remaining engaged, and that comes all into Steve Brennan, who's our Global Chief Marketing Officer. Is sort of growing the governance around marketing spend. We obviously allocate budget, but jurisdictions and teams can't unlock that budget unless they achieve the gates. So we do expect that number to increase.
I mean, it came off a very, very small base given the size of the footprint and also the U. S. Is a real big focus for us. So how we get the brand out there, how we work with retail partners is going to be a huge focus over the next 12 months.
Yes, that's clear. And then just on the while still on that cost line, are the bank fees and the data costs Sort of moved ahead of where your revenue growth was or at least your volume growth has been. Is there anything else at play there that I should be
Sorry, what was the question again, Brandon?
Some of the bank fees and data costs That you're experiencing, so a reasonable step up. Are these moving up ahead of your TTV and your revenue or they appear to be? So I'm just thinking, are there any, I guess, shifts in the proportion of these costs relative to
revenues? No. I mean, that suggests whether Unit economics have gone up, and the answer to that would be no. And it's really a focus for the next sort of going forward You really need to take advantage of the volumes that we're generating locally and globally to drive those economics down. But there's been no fundamental change in anything.
And
then the last question I had, Just maybe flipping a question that was asked earlier a different way. So potential for expanding the Australian products offshore, but conversely, You talk about the better capital recycling and the advantages of the paying for products that you're seeing offshore. Would there be Any potential or any scope to bring a product such as that to domestic to the Australian market?
The short answer is no. Our short product our short data product here is a pay by account, which we actually Really, really enjoying, we've seen obviously great results from that. So this everyday account for us is our go to market strategy here. That product set does get more challenging globally because of some of the regulatory environment and paying for is able to be launched quickly and done obviously responsibly. So for us, our product here is really the pay by account, which is Zip Pay.
And we have long term installments, which really is the visit Money Piece. So no change expected here.
And just apologies to the audio we're experiencing. I'm getting some messages through that you guys can hear the other callers okay. It's very muffled from where we are sitting, so apologies for that.
Yes, I think it might be the And sorry, just finally, just on the provision side, is there anything else at play aside from the reduction in that expected loss from 4.4% to 3.8%. Just conscious of the fact that your receivables and volumes have gone up significantly and then that dollar value is down versus the PCP.
I mean, the provision is determined through our ECL model and basically that rolls or takes the roll rates, which are factual rolls them through as performing a non performing receivable. So, there's no that is what it is. Then we'll get to a number there and then we apply an economic overlay and that economic overlay as a percentage has remained unchanged from June to December. So really, it is just an improvement in largely an improvement in those roll rates over the period.
So, directly in line with the improving performance, arguably, Provision is extremely conservative given the actual losses experienced. So obviously, that is related to that number coming down,
Your next question comes from Tim Piper with RBC Capital Markets. Please go ahead.
Morning, team. Thanks for taking the question. I just had another one around the unit economics, just given the focus But you have on that and you may talk about valuation, etcetera. I guess when we used to look at the Aus business and when we look at the business, it's always been a yield on receivables that we've kind of looked at. I noticed that obviously you've integrated QuadPay in now, which they're paying for is more of a Transaction Margins, Percentage, Volume, etcetera.
Tim, we I think we've got audio issues here in the boardroom. I think we're getting a couple of messages here coming through. So I think We'll probably have to call it here. And what we'll do is we'll give you and whoever else has we can see this in the call, the line now, we'll set up calls for you guys after. Thanks.
So thanks, everyone, and thanks for listening. And we'll touch base with research analyst later today.