As one of Australia’s early buy-now, pay-later players, Zip Co has found itself in an increasingly crowded marketplace under increasing scrutiny. But founder and chief Larry Diamond is none-too-worried about the competition.
Even before COVID-19, there was consumer demand for more payment options, and declining interest in credit cards. Businesses were also increasingly moving online, where they could offer BNPL options easily.
The COVID-19 pandemic simply accelerated those trends, Diamond tells SmartCompany.
Over the past 12 months, Zip has seen its share price skyrocket.
In the past quarter alone, its transaction volume grew 195% and its revenues were up 80%. Much of that was driven by its US business QuadPay, which saw a 234% spike in transaction volume and 188% revenue growth.
The ASX-listed company now has a market cap of $4.48 billion.
The shift in consumer behaviour has led to an influx of new competitors, each bringing their own flex to BNPL — whether that’s offering an advance on salary or a white-labelled solutions.
Just last month, both PayPal and CommBank announced they were making a play, with both offering zero fees for merchants.
Diamond, however, is unperturbed. In fact, he goes a step further and says he and his team are “big fans” of competition.
“The rising tide lifts all boats,” he muses.
It means awareness of the sector is higher than ever. About 50% of consumers have heard of Zip today, he notes. A few years ago, that would have been more like 25%.
“That really accelerates the sales cycle,” he explains.
“It helps accelerate some of these global trends, and it increases the overall pie.”
The fact that large incumbents such as Commonwealth Bank are also “jumping on board the BNPL bandwagon” shows the sheer scope of the disruption that’s underway. They’re shaken, Diamond suggests, and have realised they have to respond.
“They’re obviously worried about their future and their ability to attract and retain customers,” Diamond says.
“BNPL is really going to the heart of disruption for banking and financial services, where they haven’t really been creating products that meet the needs of customers.”
He also has no concerns about Zip’s ability to remain competitive in the new environment. There may be more and more businesses entering the race, but the founder says, but when you look under the hood, they are all very different.
Zip’s first priority is listening to its customers’ demands, and making sure its products are “fair, transparent and exciting”, says Diamond. That means a focus on “low-cost experimentation” that will allow the company to move quickly, no matter how big it becomes.
It’s also remains a founder-led organisation, meaning those themes and passions permeate through the staff, further setting Zip apart from others, Diamond suggests.
Of course, where there’s increased awareness of an industry, there’s increased criticism too. And the BNPL scene is no exception.
Critics have raised concerns about whether some operators really have the best interests of either consumers or merchants at heart.
In March this year, the BNPL Code of Practice came into effect, in what FinTech Australia chief executive Rebecca Schot-Guppy called “an excellent example of self-regulation”.
From Diamond’s perspective, the businesses “own the responsibility for issuing microcredit”. He says Zip is committed to that, and to analysing data to make sure only the right people come on to the platform.
“We’ve always pushed for fit-for-purpose regulation,” he explains.
BNPL is a very different product to a car loan or a credit card, and the application process should be different too, he argues.
The code was all about moving quickly — something regulators are not exactly famed for — and getting some guidelines in place for a sector that is growing rapidly and generating a lot of noise, but is still relatively new.
Diamond isn’t opposed to further regulation. However, he says it’s important that regulation keeps up with innovation and that is where the challenge has lain so far.
He would also like to see “a very consultative approach”, to make sure there are no blind spots in any regulatory updates and to ensure regulators “really understand the sector”.
“A really great option arose in the code, as a first step forward,” he says.
“There’s a long way to go, and if the industry and the regulators are able to move at pace, that would be ideal.”
