“Many retailers who have had success with Afterpay are now switching on Zip as well whereas other retailers are actually having a positive bias to Zip because of its lower up front charge to the retailer,” King says.
“Like credit cards, we think there is room for more than one buy now, pay later operator and we think retailers are actually incentivised to make sure Afterpay doesn’t become too dominant.”
Although Zip is focused on the Australian and New Zealand market for the time being, King said there was no reason why Zip couldn’t follow Afterpay to the US if it is successful in Australia.
Zip has three products: Zip Pay, which provides interest free credit of up to $1000 and is a product that directly competes with Afterpay; Zip Money, which is used for purchases of up to $30,000 and attracts interest; and a budgeting app Pocketbook.
Room for more than one players
Tribeca portfolio manager Jun Bei Liu also has a positive take on Zip, although the fund doesn’t have a position in Zip yet.
“It also is a very innovative and fast growing company,” she says.
Liu also thinks there is room for two major players in the buy now, pay later market and large retailers already offer both Afterpay and Zip.
But she admits she would pick Afterpay if she had to choose between the two.
“Not only has [Afterpay] demonstrated it has a profitable business model, it has demonstrated its ability to take its product global and experiences in early markets such as the US have been incredibly strong,” she says.
Shaw and Partners analyst Danny Younis is also bullish on Zip. In an analyst note last year Younis put a “buy” rating on Zip after it signed large merchants such as budget airline Tigerair, Officeworks and Super Retail Group, owner of Rebel Sports, Supercheap Auto and Macpac.
“The company has always set itself up for the long haul – and the pieces are slowly, if surely, coming together and the pipeline remains very strong,” he said at the time.
‘Afterpay has won that game’
Others are less bullish on Zip. Michael Glennon’s Glennon Capital used to be a major shareholder in Zip, but it has since sold its stake and subsequently bought Afterpay.
For Glennon, what makes Afterpay more attractive is its expansion in the US. Afterpay shares soared 13.0 per cent on Friday and closed at $16.10 after it revealed it processed more than $260 million payments in the country from July to December after launching in the US in May last year.
“The US market is a big market with 300 million people,” he says.
Glennon says even if big global players like PayPal and Apple Pay move into the buy now, pay later sector by “putting a button in to divide the payment by four” on their apps, there is still room for a service with a strong brand like Afterpay.
“Why can’t it [Afterpay] be this generation’s American Express?”
Andy Taylor, co-founder of marketplace lender SocietyOne, says when you compare Zip Pay and Afterpay – both of which compete in the interest free buy now, pay later sector for smaller retail purchases – there is a clear winner.
“Afterpay has won that game,” he says. “They got there first and they scaled it very quickly.”
But Taylor believes Zip’s strength lies in its Zip Money product, which is used for accessing credit between $1000 and $30,000 and attracts compound interest payment after three months. Afterpay doesn’t directly compete with Zip in that space because it caps the credit it extends to $2000 per person. Afterpay also does not charge compound interest on outstanding balances, although it has late fees, capped at $68.
Simon Shields, Monash Investors principal and Afterpay investor, says he sees Zip as a “more traditional credit product which faces a lot of competition, even though it’s a bit of a new twist on it, and that’s why we’re not that excited about it.”
Like Afterpay, Zip faces the ongoing threat of regulatory crackdown. Both Afterpay and Zip will be appearing before a Senate inquiry in Brisbane this week to address politicians’ questions about how they are handling customers suffering from financial hardship.
Tribeca’s Liu says regulatory risk is the “single most crucial risk for this sector.”
But Shaw and Partners’ Younis is positive about Zip’s ability to weather any regulatory crackdowns. He said Zip was the “best of breed” in the buy now, pay later space, “going well above and beyond what is required’.
Zip’s view is it will support industry-wide responsible lending checks so all providers have to do income verification, identity and credit history checks. In contrast, Afterpay has resisted such industry-wide change. Zip has been checking customers’ credit history and identity since it was founded in 2013.