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Retailers, shoppers seeking ‘instant gratification’ keep flocking to buy now, pay later upstart Zip

Rebecca Le MayNCA NewsWire
Zip co-founders Larry Diamond and Peter Gray.
Camera IconZip co-founders Larry Diamond and Peter Gray. Credit: NCA NewsWire

Buy now, pay later provider Zip Co keeps breaking records, reporting strong results for the March quarter when more retailers piled into the popular platform, including JB Fi-Fi, The Good Guys and L’Occitane.

The company had its highest ever transaction numbers for the period of 12.4 million – up a whopping 195 per cent – while quarterly revenue surged 80 per cent to $114.4m.

Both customer numbers and merchants on the platform increased by more than 80 per cent, with Microsoft, Boohoo, JD Sports, Boardriders and Adore Beauty among those companies joining up.

Zip managing director and chief executive Larry Diamond described the result as “another exceptional set of numbers”.

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Zip’s US business was again a standout – despite the period usually being seasonally weak – with transaction volumes beating the December quarter when Black Friday and Cyber Monday sales combine with Christmas.

Larry Diamond and Peter Gray of buy-now-pay-later provider Zip Co. Supplied
Camera IconZip co-founders Larry Diamond and Peter Gray. Credit: NCA NewsWire

Revenue in the US through its Quadpay product rocketed 188 per cent year-on-year, but Zip’s growth in Australia and New Zealand was far slower at 37 per cent.

Sydney-based Zip only launched in the UK late last year but says a “very healthy pipeline” of retailers is building.

After analysing website visits data, wealth management group Citi estimated BNPL market leader Afterpay had stronger growth than Zip last month, particularly in the UK where it is branded Clearpay.

While young shoppers in particular are turning their backs on credit cards in favour of BNPL, which incurs no interest on purchases, there are drawbacks.

“The allure of BNPL services, which allow people to walk out of a store with an item and pay for it later, is strong,” Graham Cooke, head of consumer research at comparison website Finder, says.

“With many services requiring no credit checks, they offer an easy path to instant gratification with few apparent drawbacks.

JB HI-FI STOCK
Camera IconMerchants including JB Hi-Fi signed up to Zip Co in the March quarter. NCA NewsWire/Joel Carrett Credit: News Corp Australia

“But there is no such thing as free credit. One in five BNPL users report missing payments, and the revenue collected from late fees across the industry has increased by 38 per cent year-on-year.”

Despite the surge in BNPL transactions over the past few years, it is estimated the value of payments – based on available listed company data – was equivalent to less than 2 per cent of the total value of Australian debit and credit card purchases in 2020, the Reserve Bank of Australia noted in a report last month.

The central bank said that was consistent with survey respondents saying they used the services infrequently and BNPL being mostly available for “discretionary” retail purchases, not businesses such as supermarkets.

The RBA also noted merchants were generally charged transaction fees for accepting BNPL payments and could be attracted to offering the service believing it would generate additional sales and/or avoid losing business to competitors that did so.

But they were unable to levy a surcharge to recoup the relatively high cost of accepting BNPL payments and “it may be in the public interest” for that to change, the RBA said.

Shares in Zip soared more than 10 per cent on the back of Tuesday’s trading update.

Originally published as Retailers, shoppers seeking ‘instant gratification’ keep flocking to buy now, pay later upstart Zip

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