Australian ‘buy now pay later’ group Zip steps up UK expansion

Zip Co, an Australia-listed “buy now pay later” company, will ramp up its expansion in the UK despite a government decision to regulate the fast-growing sector, the company has said.

Co-founder Larry Diamond said Homebase, Boohoo and The Fragrance Shop would be among the first retailers to join its UK platform, which enables customers to pay for products worth up to £1,000 in interest-free instalments.

Zip was to invest A$20m ($15m) in the UK this year, he said, joining a growing list of BNPL companies such as Klarna and Afterpay that are battling for market share in a sector changing how young people shop.

Diamond said Zip’s global retail partners had asked it to expand beyond Australia and the US, where it has 5.7m customers.

Zip, which is targeting 10m British customers within three years, is not worried about Whitehall’s decision to ask the Financial Conduct Authority to regulate a sector it warned could harm consumers.

“We’ve always pushed for fit-for-purpose regulation,” Diamond told the Financial Times. “Globally, customers are choosing to pay this way because it is a better and fairer digital alternative to the credit card, which has high interest rates.

“Responsibility is in the DNA of our organisation. We’ve done identity and credit checks since inception, unlike some of our peers . . . We definitely support lifting minimum standards across the industry.”

Most BNPL companies allow shoppers to buy goods instantly, with no affordability checks, and to spread payments over months. The companies are paid by the retailers and customers pay no interest unless they miss payments, which leads to mounting penalties.

A UK government review published on February 2 found the number of BNPL transactions in the UK almost quadrupled to £2.7bn in 2020. Many consumers did not view these products as credit, and so did not apply the same level of scrutiny, it said.

Consumer groups in the UK and elsewhere have warned that the products risk causing a “debt crisis” for millennials.

Analysts say regulation could hit customer acquisition rates, with customers potentially being restricted to using one BNPL platform or excluded altogether depending on their creditworthiness.

“How onerous the regulations will be remains unclear but it sounds likely that additional affordability tests may be required for new customers at sign-up, which adds further layers to the application process,” said Tim Piper, an analyst at RBC Capital Markets.

Diamond said regulation needed to be calibrated to avoid stifling innovation and pushing customers back to credit cards with high interest charges.

Valuations across the BNPL sector have surged over the past year even though many companies, including Zip and Afterpay, an Australia-listed BNPL rival that trades under the name Clearpay in the UK, have never made a profit. Zip and Afterpay have more than trebled in value over the past 12 months to A$5.7bn and A$34bn respectively.

Diamond said the BNPL sector had demonstrated its robustness during the pandemic, which caused a flight to online shopping. Concerns about a technology crash were overdone, he added, and as long as companies focused on fundamentals, BNPL was “a good long-term play”.