The cryptocurrency craze is among the most divisive trends in the financial world. While enthusiasts are sanguine bitcoin-style digital assets will revolutionise money as we know it, most traditional banks don\u2019t want a bar of the asset class.<\/p>\n
Amid the debate, however, Zip Co\u2019s co-founder and chief executive Larry Diamond says there\u2019s a simple reason as to why his buy now, pay later (BNPL) company is getting ready to offer \u201ccrypto\u201d assets to Zip customers: you always give customers what they want.<\/p>\n
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Zip Co\u2019s Larry Diamond.<\/span>Credit:<\/span> Dominic Lorrimer<\/cite><\/p>\n Just as BNPL services have taken off with younger shoppers, turning Sydney-based Zip into a $3.7 billion business, Diamond is betting that backing crypto assets can further enhance Zip\u2019s appeal with its younger target market.<\/p>\n \u201cWhen we survey our customers, crypto investing comes up as one of the financial services, where we need to meet the needs of [our] customers,\u201d Diamond says.<\/p>\n ASX-listed Zip is Australia\u2019s second largest BNPL operator, behind industry juggernaut Afterpay. And with that market starting to get crowded, Zip\u2019s crypto foray is the latest sign of BNPL outfits rushing to offer a wider range of financial products to their customers.<\/p>\n The 39-year Diamond, who is married and has three sons, co-founded Zip in 2013 with finance industry veteran Peter Gray. Before that, his career included working in technology, investment banking, and investing in a T-shirt printing business.<\/p>\n Diamond holds 9.7 per cent of Zip shares and was ranked 21st on the Australian Financial Review\u2019s<\/em> Young Rich List, with wealth of $468 million. Zip, which will hold its annual shareholder meeting this Thursday, has seen its share price surge by roughly eight times in the last five years, from just above 80 cents a share to $6.50 a share.<\/p>\n The company\u2019s planned move into cryptos within the next year – first announced in September – comes amid a fresh round of hype surrounding digital currencies. Bitcoin has recently traded at record highs, and a parliamentary inquiry led by Liberal Senator Andrew Bragg last month called for a shake up in how the nascent yet volatile asset class is regulated.<\/p>\n Details on exactly how Zip\u2019s crypto push will work are still vague. It will introduce the product in its US business first, initially focusing on cryptos as an investment, with later plans to allow people to pay for purchases in cryptocurrencies. Diamond stresses that Zip will work with regulators and try to make sure customers understand what they are getting into. \u201cWe want to do it the right way, which means that we\u2019re educating our users about it,\u201d he says.<\/p>\n \u201cIf we dropped all of our growth capex, sure, we\u2019d be very, very profitable, but we\u2019re reinvesting for growth<\/p>\n Diamond predicts that in a few year\u2019s time, BNPL companies will be doing a lot more than simply offering instalment payments.<\/p>\n \u201cI think a lot of the sceptics are now seeing that buy now, pay later isn\u2019t just changing the face of retail, it\u2019s not just changing the face of omni-channel, it\u2019s now changing the face of financial services.\u201d<\/p>\n But BNPL stocks remain a divisive topic for the investment community, with opinion split on whether these much-hyped fintechs can actually fulfil their lofty ambitions of displacing incumbent banks in the consumer finance and payments markets.<\/p>\n Morningstar analyst Shaun Ler says the move into cryptos was a necessary one for Zip to remain relevant in a crowded market. \u201cIn the absence of this product, it\u2019s really hard to see them compete,\u201d Ler says.<\/p>\n He also questions whether Zip can truly challenge Afterpay with its current strategy, which has also seen the company expand in recent months into markets including India, parts of Europe\u00a0and the Middle East, alongside its core businesses in the US and Australia. \u201cIt\u2019s hard to see this strategy propelling their growth to surpass the likes of Afterpay,\u201d Ler says. \u201cI expect them to just maintain their share.\u201d<\/p>\n Given the sheer size of the players Zip is up against, some also question if it may end being bought out.<\/p>\n Portfolio Manager at Opal Capital Management, Omkar Joshi, says he would not be surprised if Zip is ultimately bought by a rival because scale was crucial in the fiercely competitive BNPL sector.<\/p>\n \u201cI suspect at some point it could get acquired. The whole sector is likely to consolidate – there\u2019s too many players, and it\u2019s very competitive,\u201d says Joshi, who does not hold Zip shares but has watched the sector closely.<\/p>\n Afterpay and Zip users may soon face surcharges imposed by retailers on card payments. <\/span>Credit:<\/span>Louie Douvis<\/cite><\/p>\n Asked about the speculation Zip could be a takeover target, Diamond responds by highlighting the company\u2019s fonder-led approach, which has seen it buy BNPL operators around the world. \u201cAll these founders that we\u2019ve acquired or inherited are incredibly driven, and feel like there is a lot more work to be done,\u201d he says.<\/p>\n As for the prospect of losing market share to Afterpay after it has merged with US fintech giant Square, Diamond says Zip\u2019s core Australian business is \u201cmature\u201d and it has more partnerships with merchants coming in months ahead.<\/p>\n Some doubters also point out neither Zip nor Afterpay has yet posted a profit, despite soaring customer and revenue numbers. But Diamond responds that this is because it is prioritising growth. \u201cIf we dropped all of our growth capex, sure, we\u2019d be very, very profitable, but we\u2019re reinvesting for growth,\u201d he says.<\/p>\n But despite what some sceptics say, Diamond remains upbeat that the company\u2019s success in the Australian market can be replicated around the globe as more shoppers dump traditional credit.<\/p>\n \u201cI think our story is starting to resonate. What was an Australian story for the first six years, over the last two to three years is becoming much more of a global story, and that becomes interesting to more kind of global investors.\u201d<\/p>\n The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion.<\/i><\/b> Sign up to get it every weekday morning<\/i><\/b>.<\/i><\/b><\/p>\n<\/p>\n
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