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 around the world.

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. 

Whenever a consumer makes a purchase and selects 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.
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