When recruiters first approached Joe Heck to lead Zip's U.S.-based operations, he had some reservations.
"I remember when the recruiter called me about a buy now, pay later company. I was like, 'Oh,' Heck said in an interview, assuming it was just another
In fact, Heck believes that BNPL is "one of the first truly innovative financial products" that has been scaled in the last 10 years.
"Most other financial services are reskinning financial tools and making them digitally native," he said. "They're still the same complicated, hard-to-understand products built by financial professionals for financial professionals."
Heck, as the Australia-based BNPL firm's CEO of U.S. operations, aims to change the stigma that buy now/pay later companies
"I don't really consider us a buy now/pay later [company] as much as we're kind of a cash flow smoothing mechanism," Heck said. "If you look at where most of the buy now/pay later spaces evolved, it's mostly like an alternative to credit cards. We're really focused on the person that can't get a credit card."
Heck is inheriting strong fiscal-year earnings that have been propelled by new products, such as Zip's Pay in 8 option for larger purchases – which is an extension of the Pay in 4 option common in the BNPL space – and increased in-store card purchases.
Earnings for the company's Americas business hit a record high for the fiscal year ended June 30, according to the company's Aug. 27 earnings report. Earnings before interest, tax, depreciation and amortization reached AU$77 million ($52 million), compared with a loss of AU$24.1 million in the 2023 fiscal year. Revenue increased nearly 47% to AU$304.5 million on the coattails of an almost 34% increase in transaction volume to 33.9 million.
Heck plans to lean into that momentum in the coming year to transition Zip from "quietly under the radar" to a more ubiquitous name through four key areas: increased merchant relationships to embed Zip BNPL into more retail locations, scaling channel partnerships such as its relationship with Stripe, increase "anytime, anywhere" purchase capabilities for its in-app purchase options, and expand its Pay in 8 product, which allows customers to split larger purchases into eight equal installments over 14 weeks.
I don't really consider us a buy now/pay later [company] as much as we're kind of a cash flow smoothing mechanism.
Zip works with merchants such as Amazon, Best Buy, eBay and Uber, among others, and counts Adyen, Google Pay and Stripe among its channel partners.
Aaron McPherson, principal at AMF Consulting, said scaling merchant relationships is "crucial" for challenger companies to compete with established BNPL providers such as
"You're going up against entrenched competitors that already have those relationships, so you need to see to have a clear differentiator, maybe better terms for the merchant or some other feature," McPherson said.
Scaling active merchants and increasing active customers are two areas of weakness in Zip's last fiscal year. Zip's active U.S. merchants for fiscal 2024 inched up 0.7% to 24,200 merchants. Active U.S. customers fell 1.4% to 3.8 million, according to the company's earnings results.
Pay by 8 could be the feature that attracts additional merchants, McPherson said. "That could be a competitive advantage for them because it makes it less expensive in the short run for the consumer." The extended payment term could also help bring in customers into Zip's ecosystem who otherwise wouldn't shop at that particular merchant, he said.
But extended payment terms pose additional risks, McPherson said. "You don't want this debt hanging out there too long. You want to fail fast. If there's going to be a problem, you want to know about it quickly."
For Heck, the challenge will be offering new BNPL options to new merchants and customers while maintaining proper risk management guardrails in a budding market that is seeing more players jump in, McPherson said, noting the market "is definitely
Heck said Zip is also targeting verticals such as automotive or back-to-school expenses as it looks to scale its business.
"Automotive is a good [use case] because of unexpected expenses," Heck said. "Work from home, if you need another monitor or keyboard, is another great [use case]." Entertainment, such as sports ticketing, is also a potential vertical for Zip to focus on.
"Everything anchors back to affordability," he said.
"We want to make sure that they have the flexibility in their payment structure to afford [purchases]," Heck said. "This was my misconception [and] I think the market's broad misconception is a lot of people just think of BNPL as giving money to people that shouldn't be spending it. And in reality, that's a pretty judgy way to look at it."
