Zip Co Ltd (ASX: Z1P) is the second largest "buy now, pay later" (BNPL) provider in Australia, and whilst still lagging behind Afterpay Touch Group Ltd (ASX: APT) in terms of size and network, Zip Co has managed to build its brand up and become a heavyweight in the Australian BNPL market.
What is Zip and how does it differ from Afterpay?
Zip offers two BNPL services, being ZipPay (for purchases up to $1,000) and ZipMoney (with a $1,000 – $30,000 credit limit). Zip customers pay a portion of the total amount owed at checkout, receive their goods on the spot and then repay Zip over a given period of time agreed with the company. Unlike Afterpay, Zip prides itself on its flexible payment options rather than a rigid, fortnightly repayment schedule run by its rival.
The Zip business model differs slightly from that of Afterpay, as it does not use an instant verification process at checkout such as Afterpay. Customers must apply for a Zip account, and once approved, may begin making purchases through the service in much the same way. This is largely a function of Zip's classification as a provider of credit, and it is, therefore, subject to strict protocols under its Australian Credit Licence and the National Consumer Credit Protection Act (2009) which Afterpay is not.
In the recent Senate inquiry into the BNPL industry and pay-day lending, Zip actually pushed quite vocally for Afterpay to be considered a credit provider and therefore be subject to the same stringent customer verification processes that it requires. This remains a key competitive advantage for Afterpay, and also a big benefit to consumers in terms of the ease of use of the Afterpay service.
So why would I choose Zip instead?
I think the $30,000 limit on the Zip service is a big plus for consumers who are looking to make those larger purchases but don't want to pay it all up front. This can be particularly helpful for those that get paid on a regular basis, as this can smooth out those big ticket items and make your spending and cash flow a bit more manageable from a budgeting perspective.
The other big plus for Zip over another service such as Afterpay is the payment flexibility I mentioned earlier. Rather than being stuck on regular payments, consumers have a bit more wriggle room to work with their payments and pay back more or less depending on when their income is coming in.
What's the verdict?
I think Zip has positioned itself quite well to capture a different segment of the market to Afterpay, which targets largely millennials making smaller purchases online and in-store. While I'm not personally a big user of the Zip service, I can see the benefit for those who are organised enough to sign up for an account before making a purchase and who are looking to purchase those larger items and spread those payments out over a flexible schedule.
