PAL partners with BillEase to sell tickets to the poor with a 50% annual interest rate

The struggling Philippine Airlines [PAL 6.05] which is still under bankruptcy protection and that is also still untradeable for failure to submit audited financial statements, announced that it has teamed up with a company called “BillEase” to offer customers the option of using BillEase’s platform to pay for flights in instalments.

PAL referred to this as offering customers a “transparent and flexible way to pay”, as it allows customers to go into debt to pay for flights without owning a credit card.

PAL said that the BillEase option’s instalment payment plan helps customers by “removing some of the hassle and added costs of planning a trip during the new normal”. BillEase charges customers 3.49% monthly interest to borrow up to P40,000, which can then be repaid to BillEase over three months (for new customers). Missed payments are subject to a P50 penalty (per day).

MB BOTTOM-LINE

Everyone keeps saying that PAL should copy Cebu Pacific [CEB 38.90 1.14%], but not like this!

Predatory lenders like BillEase make the interest they charge appear reasonable by quoting a monthly rate, but when that rate is compounded and annualized, it works out to be higher than 50%. And that’s excluding any one-time setup fees, service charges, or late fees that the company might add to the customer’s bill.

This is very similar to CEB’s use of the Gokongwei-funded service, Cashalo, which I wrote about here, While Cashalo’s monthly interest rate has come down since the writing of that article (thanks to competition from other app-based 5-6 lenders?), both BillEase and Cashalo still charge more than 50% per year in the payday-loan method of lending that is meant to squeeze as much as possible from customers that can least afford it.

As a startup, BillEase targets the “unbanked”, which is the holy grail of PH fintech, and dresses up its profit-making motives with marketing based on “affordability” and “flexibility”. BillEase says that its interest rate is “close” to what the credit card providers are offering, but a recent BSP circular capped the interest that credit card providers can charge to just 24% per year.

BillEase’s rate is more than 100% higher than the BSP-capped limit for credit cards.

Any PAL investors that are still stuck in the stock will probably approve of any PAL attempt to grow its profits, but it seems hard to see how charging 50% interest on plane tickets is a sustainable practice that will grow repeat business over time. 

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