Latitude staying ahead
COVID-19 has significantly altered consumers’ spending behaviour. Eva Zileli, treasurer at Latitude Financial Services in Melbourne, speaks to KangaNews about the challenges the pandemic presents and how the lender is staying ahead of its competitors.
Australians have been increasing their savings as COVID-19-related uncertainty extends further into the future. How have Latitude’s receivables been affected by COVID-19 and how does this affect business strategy?
Consumers appear to be using their savings and superannuation to pay down debt. What is positive is that we are seeing higher-risk customers paying down the most, which means we continue to improve the quality of an already strong loan book. Delinquencies during COVID-19 are the lowest we have recorded.
At the same time, we have seen strong growth in our interest-free shopping business, as Australians have shifted their spending to the home including to set up offices and make other improvements. This is why we have reset our strategy around the strengths of our many retail partnerships and to take advantage of consumer preferences for interest-free shopping.
It has been a little over a year since Latitude Pay, the buy-now, pay-later (BNPL) product, was launched. How is this product performing in a congested field during COVID-19?
The rollout is progressing well and the product has exceeded our expectations for take-up, with about 500,000 users already and an expanding list of retail partners. In a recent survey we commissioned around brand recognition for BNPL products, Latitude Pay came in at number three. It is a great effort considering we only launched a year ago.
Latitude secured nearly A$1.4 billion (US$1 billion) in warehouse funding in June, which included A$237 million from the Australian Office of Financial Management. How has COVID-19 affected the way Latitude accesses funding and what plans do you have for terming out the new facility – as well as any other securitisation issuance?
The current conditions reinforce the fact that market access and liquidity are not always there when you need them. Latitude has always believed it is prudent to access financing well in advance of scheduled maturity dates – and COVID-19 has proved why this is so important.
The process for the new warehouse funding began in March for a maturity that wasn’t due until September. We completed the refinancing six months ahead of its due date and it was oversubscribed by more than A$200 million. We are currently working on other warehouse refinancings that mature early next year.
When it comes to terming out those facilities, it could be something we look at as market conditions improve but there are no immediate plans. Our focus has been to refinance the warehouses as our base funding platforms before looking for opportunities in public funding markets.
Offshore investor engagement has been a big part of Latitude’s investor-relations strategy. How have you managed this during the pandemic period, especially as the business has not had a capital-markets transaction to offer?
Very few face-to-face meetings are being undertaken in any case and we have conducted investor engagement via VC or telephone. There has been a ramp up in investor engagement since the onset of COVID-19. We have reached out to offshore investors to inform them of the impact of the coronavirus on Australia.
We enhanced our hardship reporting as investors are very focused on the number and value of approved hardship applications. Delinquencies are well down on where they were last year and the volume of hardship, though elevated from pre-COVID-19, is not excessive. All in all, investors have been very comfortable with our performance.
There has been particular interest in what will occur in September and October as federal government stimulus was set to unwind. Pleasingly, the government extended the support into next year although offshore investors remain interested in how it will eventually be scaled back.
With a challenged economy and ample liquidity in the banking sector, has Latitude changed its views on growth potential?
Challenges also provide opportunities, particularly in the interest-free-payment space – which is rapidly evolving. This in turn is driving product innovation and we will soon launch a new big-ticket BNPL product.
We have the benefit of a large customer base, many of whom have been Latitude customers for more than 10 years. We have longstanding relationships with merchants and continue to work with them on product enhancements that support them and our customers.
COVID-19 hasn’t reduced our appetite for growth. We are transforming the business to ensure we stay ahead of the competition.
nonbank Yearbook 2020
KangaNews's fourth annual guide to the business and funding trends in Australia's nonbank financial-institution sector.