Why the Zip (ASX:Z1P) share price is down 5% today

It hasn't been a great day for this BNPL company's shares…

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The Zip Co Ltd (ASX: Z1P) share price is on course to end the week on a disappointing note.

In late morning trade, the buy now pay later (BNPL) provider's shares are down 5% to $8.07.

Why is the Zip share price tumbling lower today?

Today's weakness in the Zip share price appears to have been driven by a broker note out of Citi this morning.

According to the note, the broker has been looking at the new pay anywhere offering from Afterpay Ltd (ASX: APT) in the United States.

This new service will allow US consumers to generate a single-use card to enter at checkout for some of the largest retailers in the lucrative market. The transaction is then facilitated by Afterpay, with all the usual benefits of instalment payments.

The new retailers that have been on-boarded include the likes Amazon, Dell, Kroger, Nike, Target, and Walgreens. Combined, the 12 new retailers represent almost half of the ecommerce volume processed in the US market.

Unsurprisingly, this news went down well with the market, sending the Afterpay share price hurtling higher this week.

Why is this bad for Zip?

Citi believes that Afterpay's new offering will increase customer engagement in the US market and put pressure on Zip's US-based QuadPay business.

This is because the broker's research suggests that there is a high customer overlap between Afterpay and QuadPay in the US. Therefore, if consumers are attracted to Afterpay's app because they can shop at those retailers, it could come at the expense of QuadPay.

In other news

A note out of Morgan Stanley this morning reveals that its analysts are positive on Afterpay's new offering as well.

The broker sees the product as supportive for sales growth and merchant-fees. It also suspects that it could present an opportunity for Afterpay to build relationships with these major retailers, potentially leading to their integration into its network in the future.

Morgan Stanley has retained its buy rating and $145.00 price target on Afterpay's shares.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO and ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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