How does Zip make money?

Zip is an Australian fintech company founded in 2013 by Larry Diamond and Peter Gray.

The year prior, former investment banker Diamond had been pitching to investors a new idea that would change the face of consumer finance.

Diamond wanted to leverage technology to provide a quick and easy interest-free line of credit to consumers, but his pitches always fell flat because he lacked experience.

To help him refine his business case, Diamond hired credit specialist Peter Gray. For the next six months, the pair met in the bar of a Sydney hotel to create a business plan.

The company, then known as ZipMoney Limited, was incorporated in June 2013 with the financial backing of friends and family. During this time, Diamond and Gray worked hard to convince retailers to join their platform.

After launching to the public around six months later, Zip debuted on the ASX via a reverse takeover.

This strategy was considered more preferable since venture capital funding in Australia is more difficult to secure than in other parts of the world.

Over the next few years, Zip successfully raised capital from an American asset manager and two Australian banks.

In May 2019, Zip became a $1 billion company and in the process, one of Australia’s most valuable fintech companies.

Aggressive growth and expansion have occurred since, with the company acquiring rival service Quadpay and entering the lucrative U.S. market soon after.

Today, Zip has approximately 7.3 million customers and 51,300 retail partners worldwide.

Aspect	Description
Core Business Model	Zip generates revenue primarily through its core business model of providing buy now, pay later (BNPL) services to consumers. BNPL allows customers to make purchases from partnered retailers and pay for them in multiple installments over time, often interest-free or with minimal fees. Zip earns money by charging fees to both customers and merchants for facilitating these transactions.
Merchant Fees	One of Zip’s primary sources of revenue is merchant fees. When consumers use Zip’s BNPL services to make purchases from partner retailers, the merchants pay a fee to Zip. This fee is usually a percentage of the transaction value. Merchants find value in offering BNPL options to customers as it can increase sales and customer loyalty.
Late Fees and Interest Charges	While Zip offers interest-free payment options, it also provides longer-term payment plans that may carry interest charges. Customers who choose these plans may incur interest fees if they don’t pay off their balances within the specified interest-free period. Zip generates revenue from these interest charges, particularly when customers carry balances forward. Additionally, Zip may charge late fees to customers who miss payment deadlines.
Monthly Account Fees	Zip may charge customers monthly account fees for access to certain premium features or benefits. These fees can provide a steady source of income for the company, especially from customers who choose to subscribe to premium services.
Transaction Processing Fees	Zip may earn money from transaction processing fees. This can include fees for processing credit and debit card transactions, bank transfers, and other payment methods used by customers to repay their BNPL purchases.
Cross-Selling and Upselling	To diversify its revenue streams, Zip may engage in cross-selling and upselling. This involves offering customers additional financial products and services, such as personal loans, insurance, or budgeting tools. The company may earn commissions or fees when customers opt for these supplementary offerings.
Partnership and Data Insights	Zip may enter into partnerships with various companies to expand its reach and offer its BNPL services to a broader customer base. These partnerships can involve revenue-sharing agreements, referral fees, or other financial arrangements. Additionally, Zip can derive value from data insights generated through customer transactions, allowing it to optimize its services and potentially monetize data through partnerships or analytics services.
International Expansion	As Zip expands its services to international markets, it may earn revenue by replicating its successful BNPL model in these regions. Revenue generation methods in international markets may be similar to those in its home market, including merchant fees, interest charges, and subscription fees.

Table of Contents

Zip revenue generation

As a fintech company, Zip makes money from merchant fees, loan interest, repayment fees, account establishment fees, and penalty fees.

Let’s take a look at each of these in more detail below.

Merchant service fees

Merchant service fees are charged on a per-transaction basis and represent the largest source of revenue for Zip.

When consumers purchase and select Zip as the payment option, merchants are charged $0.30 plus 5% of the total transaction.

Loan interest

Consumers who use Zip are charged interest for any purchases that remain outstanding after three months.

In Australia, for example, the monthly interest fee is $6.

Repayment fees

Repayment fees are also charged in the Zip Business Trade Plus service, which offers a buy-now-pay-later solution for businesses.

Each account has a repayment fee of 3% if the business chooses to pay its statement balance in installments.

Account establishment fees

Zip also charges an account establishment fee to new applicants. This fee covers the cost of performing a background credit check.

Penalty fees

In most cases, monthly repayments on purchases are direct-debited from a consumer’s bank account.

In markets such as the United Kingdom, however, customers are charged a £6 penalty (late) fee if they fail to make a payment before the specified date.

Key takeaways

Zip is an Australian fintech company founded in 2013 by Larry Diamond and Peter Gray. Diamond had an idea to revolutionize consumer finance by giving shoppers quick and convenient access to credit.
Zip makes the bulk of its revenue from merchant fees, which comprise a fixed amount plus a percentage of the total transaction. The company also charges interest on outstanding purchases and repayment fees as part of its business lending service.
Zip charges an account establishment fee to cover the cost of performing a creditworthiness check. In some markets, it also charges a late fee.