The Zip Co Ltd (ASX: Z1P) share price was up 3.5% in early morning trading before turning around in the afternoon to close 0.7% lower.
This came after the company's progress report, released today, revealed a major expansion to its buy now, pay later (BNPL) services – Tap & Zip.
Despite today's retracement, the Zip share price is up 101% since 2 January.
By comparison the S&P/ASX 200 Index (ASX: XJO) is down 6% year to date.
Why will Tap & Zip open up a much larger market?
Founded with the intent to disrupt the traditional credit card industry, Zip's latest offering, Tap & Zip, now looks set to also disrupt the 'traditional' BNPL industry.
Tap & Zip is powered by the company's partnerships with Visa Inc (NYSE: V) and Marqeta, the world's first open API modern card issuing platform.
Commencing today, you'll be able to pay for your online or in-store purchases with Zip anywhere in Australia that accepts Visa payments online and Visa contactless payments in store.
To give you an idea of the potential growth here, according to RFI Research, until today only 13% of Australian stores have been able to accept BNPL options. The vast majority offer contactless Visa payment terminals.
Contactless payments arrived in Australia in 2006. Since then, consumers have increasingly embraced the touch-free option over cash or entering their PIN. A trend that's accelerated since the outbreak of the global pandemic.
Staying with the growth outlook, Zip reports that (until today) only 24% of its transactions have been occurring in brick and mortar stores. That compares to 87% of broader Australian retail transactions made in store.
Beyond being able to use Zip anywhere that accepts Visa, from today Zip customers can also use Apple Inc's (NASDAQ: AAPL) Apple Pay and Alphabet Inc's (NASDAQ: GOOGL) Google Pay.
Zip's Co-founder and CEO, Larry Diamond said that Tap & Zip, "completely changes the game, enabling Zip to compete with the credit card at every checkout in Australia."
He added, "Tap & Zip marks the future of BNPL: flexible and transparent payment options that are accepted everywhere."
Our chat with Zip's Chief Commercial Officer, Hamish Moline
Earlier today, the Motley Fool had a chance to catch up with Zip's Chief Commercial Officer, Hamish Moline for his insights on the wider impact of the new Tap & Zip.
Moline said:
Buy now pay later continues to grow strongly, which is great news for all of us. Our focus is really on the untapped in-store opportunity. Only 24% of our transactions are in-store today, so there's a huge opportunity for us to move in and make sure that Zip becomes the first payment choice. Obviously, we want that every day and everywhere, and Tap & Zip is designed to really drive that.
With Tap & Zip backed by Visa, we wondered what type of impact this might have on traditional credit card companies.
Moline commented:
We are an alternate to traditional credit cards. And we have 2.2 million customers now. 49% of them are Millennials and 59% say they don't have a credit card. We're seeing a whole new category of customer who want more flexible interest rate options. For us it's about tapping that market and giving them what they need.
Credit card companies are certainly now looking at the buy now pay later space. And you've seen some of them do things similar to Zip. We're proud of the fact that we're a pioneer here, that we've created a model of more flexible interest free products. So we want to continue to grow our base from where it is today.
Hamish Moline also hopes the new Tap & Zip rollout will help give some of Australia's stressed retailers a hand.
There are lots of businesses who don't currently accept buy now pay later who have struggled through COVID. And as people get back to the shops, particularly towards the next trading period going into Christmas, we hope our consumers will shop at new merchants that haven't seen the benefit of buy now pay later yet.
When Zip's brand is available it increases sales 20% from our customers, and it increases the conversion rate and basket size for our merchants.
Moline was obviously reluctant to speculate on the impact Tap & Zip may have on the company's future revenue stream. He did say:
Tap & Zip is just one of the new ways our consumers can now shop and it really opens up a whole bunch of new merchant categories for us, particularly around every day spending like groceries and fuel and other areas. Our customers have been asking us for a long time to increase the number of merchants that we transact at.
We offer a number of products. Zip Pay is one Zip Money is another; we have online and in-store. And we continue to have QR and barcode on top of Tap & Zip. For us this is about really driving consumer engagement and activation, while continuing to help our merchants by increasing their conversion rates and basket sizes.
Zip already has a strong presence in the United States, with more than 2.1 million customers. Asked about the company's future market expansion plans, Moline told us:
We're doubling down on the US, where we already have tap and pay. And we'll be launching more aggressively in the UK. We're also looking at a number of other markets that might be good for buy now pay later.
Finally, we wanted to know if Zip is concerned about the potential of rising customer defaults as government support measures, such as JobSeeker and JobKeeper, get wound down into 2021.
Moline commented:
One of the things we pride ourselves on is our responsible lending. We do credit checks and ID checks for all of our customers, regardless of product. We saw a spike in some of the hardship during the start of COVID, to 1,200 or so individuals. That's declined since then to about 600. We'll keep an eye on that. But given the way in which we scale up our loan book to our customers we're quite comfortable with where we are today.
With the Zip share price more than doubling so far in 2020, and up an eye-popping 478% since the 23 March lows, this is one BNPL share to keep an eye on.
