Tiêu đề Zip - In need of growth oriented competitive strategies.pdf ✅

Page 2 9B21M025 consumer purchase financing.”15 Between January 2018 and August 2020, Zip’s share price had increased from $1 to $10,16 and in 2020, Zip had $157 million in revenue—a 90 per cent increase over the previous year (see Exhibit 2). In 2019, Zip had 185 employees.17 Zip offered interest-free point-of-sale credit and digital payment services to consumers in the retail, home, health, automotive, and travel industries.18 To be eligible to use Zip in Australia, a customer had to be an Australian citizen or permanent resident above 18 years of age and to have either a PayPal or a Facebook account and a valid debit card; eligible consumers must not have declared insolvency or bankruptcy.19 BNPL INDUSTRY Between 2016 and 2019, the number of consumers using BNPL services increased from 100,000 to over 5.6 million globally; most were millennials.20 According to the online payment processing company Worldpay Group Plc (Worldpay), the BNPL industry was expected to double in value between 2020 and 2023.21 Most BNPL players let consumers pay for their purchases in four to six instalments without paying any interest.22 For example, BNPL allowed consumers with purchases worth $500 to pay for these in four weekly instalments of $125 without any additional interest charges. In addition to Zip, well-known BNPL firms across the world included Affirm Inc. (Affirm) in the United States; Afterpay in Australia; Klarna in Sweden; OVO PayLater in Indonesia; PayU Finance India Private Limited (LazyPay) and Simpl Technologies Private Ltd. (Simpl) in India; and Paays Financial Technologies (Paays), Health Smart Financial Services Inc. (PayBright), and Uplift Canada Services ULC (Uplift) in Canada.23 BNPL service providers received revenue generated through merchant fees, which ranged from 3.0 per cent to 6.0 per cent of transaction values, and late fees from consumers.24 During the COVID-19 pandemic, those retailers who added the BNPL option to their online and mobile platforms noticed a 30 per cent increase in shopping cart size, a 25 per cent decrease in cart abandonment during checkout, and an up-to-20 per cent increase in repeat customers.25 However, experts did not consider the BNPL industry to be profitable. The managing director of McLean Roche Consulting Group Pty Ltd., Grant Halverson, said, “It is clear from these numbers that buy now, pay later companies will never make great profits: they are high volume, very low margin businesses.”26 BNPL INDUSTRY IN AUSTRALIA The BNPL industry was growing in Australia, but was experiencing losses overall; however, those losses as a share of revenues had declined over the years.27 In Australia, in 2019, two million consumers used BNPL services,28 and by June 2020, 52.2 per cent of Australians were aware of BNPL companies.29 The Australian BNPL industry’s revenue was expected to grow at an annualized rate of 9.8 per cent between 2020 and 2025, reaching a value of $1.1 billion.30 After implementing BNPL services in 2018, the Australian fashion retailer Princess Polly reported a 20 per cent increase in total sales, a 60 per cent increase in average order value, and a 10 per cent increase in its conversion rate.31 However, a 2018 study by the Australian Securities and Investments Commission observed that consumers felt that they ended up spending more than they could afford with BNPL services. One in six consumers had also experienced adverse financial effects because of BNPL-induced buying behaviour.32 Consumers were overextended and had to borrow money from family or friends or use other loan services to cover their current debts to focal BNPL service providers.33 This document is authorized for use only in Ralph Kober's Case Competition at Monash University from Mar 2024 to Sep 2024.
Page 3 9B21M025 BNPL INDUSTRY IN THE UNITED STATES BNPL companies came into practice in the United States after the Second World War. According to Mark A. Cohen, director of retail studies at the Columbia University Graduate School of Business, “First, there were individual store accounts, largely built, like rent, on a pay-each-month basis. . . . Then there were retail store credit cards—à la Sears, Roebuck and Co.; Macy’s, etc.—which enabled customers to buy now and pay over time.”34 However, the focus of such BNPL companies was high-end items and not low-priced retail products. The United States had a $5 trillion retail market and was the largest BNPL market in the world in 2020.35 Nevertheless, a survey published in July 2020 found that only 22 per cent of Americans completely understood all of the terms and conditions of BNPL.36 Comparing the Australian and US markets for the BNPL category, Charlie Youakim, CEO of the technology-driven payments company Sezzle, said, “The buy now, pay later sector in the US is very nascent compared to Australia and there is more than room for multiple players.”37 ZIP’S BUSINESS MODEL Unlike other BNPL companies, Zip offered a line of credit,38 wherein consumers were not required to repay the entire amount in four to six fixed instalments (see Exhibit 3). Instead, Zip followed a minimum monthly payment model, charging consumers a fixed $6 fee every month, starting two months after their purchase until they had made complete payments.39 The start-up also levied an additional late payment fee of $5 if a consumer failed to pay a minimum monthly payment of $40. Apart from this, Zip charged retailers a four per cent fee—i.e., for a $1,000 purchase made by a consumer, Zip paid the retailer $960.40 Gray, the co- founder of Zip, believed the company had a competitive edge over other BNPL companies. He said, “Most of the challengers are going head to head with Afterpay’s model, but . . . they don’t have strong repeat transaction behaviour and they don’t have a differentiating factor.”41 Zip leveraged big data analytics in its credit-decision technology.42 The company made credit decisions using both conventional and non-conventional consumer data, which helped it achieve lower loss rates as well as better approval ratings.43 For instance, if a consumer did not have a credit file, then Zip—using the services of partners like Pocketbook Australia Pty Ltd. (Pocketbook), a developer and marketer of software for personal finance management—checked the consumer’s bank savings to determine that consumer’s creditworthiness. In May 2019, Zip allied with Kmart Australia Limited (Kmart), an Australian retailer, to offer its BNPL services. The same year, Afterpay also locked a deal with Kmart. Most retailers were allying with different BNPL companies.44 In November 2019, Zip also allied with Amazon.com Inc. (Amazon) to offer its BNPL services in Australia. After this news became public, Zip’s share price increased by 20 per cent.45 In June 2020, Zip also allied with the online and mobile-only neobank, 46 which provided its 86,400 customers with complete and accurate pictures of their financial status—i.e., what they were borrowing, spending, and saving.47 Leading Australian banks such as Westpac Banking Corporation also allied with Zip by providing $40 million in equity funding.48 Commenting on the partnership with banks, Gray said it was a win-win situation: fintechs could benefit from the banks’ hundreds of years of financial experience, and banks could learn consumer engagement behaviour—something that had become difficult for them, from the fintechs.49 Although consumers used Zip mostly for retail transactions, they occasionally used it for high-end purchases (see Exhibit 4). The retail purchases consumers made using Zip were primarily clothing, fashion items, or restaurant meals.50 As customers demanded more choice and convenience, Zip invested in innovating its payment ecosystem, for example, making it possible for them to use the Zip application’s (app’s) innovative features to pay bills or to purchase and send gift cards.51 While people in all age groups from 18 to 80 preferred Zip services, this preference was most significant among millennials; according to This document is authorized for use only in Ralph Kober's Case Competition at Monash University from Mar 2024 to Sep 2024.
Page 4 9B21M025 the company, Zip was trustworthy and convenient to use.52 As a result, Zip’s revenues increased over the years, though its net income remained negative (see Exhibit 2). Zip’s losses for the first half of 2020 increased five times to $30.3 million due to increasing costs, including the $60 million purchase of PartPay Limited (PartPay), a BNPL service provider from New Zealand.53 Its low loss rates during the pandemic were attributed to the fiscal stimulus that the government was providing to unemployed citizens.54 Zip used artificial intelligence–based solutions to spot risky customers, and the accuracy of these tests ensured that its customers’ default rate was less than 1.5 per cent.55 Experts believed that control of customer defaults was the key criterion for determining the profitability of BNPL players like Zip. 56 ZIP’S GROWTH STRATEGIES Zip leveraged acquisitions largely to increase the scope and market of its BPNL services. In 2016, Zip acquired Pocketbook in order to achieve significant savings. Together, Zip and Pocketbook were able to offer smart financial-services solutions to their consumers.57 Alvin Singh, Pocketbook’s co-founder, said, “People just don’t know where their spending is going and how to begin saving or saving that much more. We help them to that.”58 In August 2019, Zip acquired 100 per cent of the shares of PartPay,59 hoping to use it to enter major BNPL markets like New Zealand, the United Kingdom, the United States, and South Africa.60 In September 2019, Zip acquired Spotcap ANZ to further expand its market in New Zealand. The company said it wanted to “fast-track its new business offering, Zip Biz, by on-boarding Spotcap’s IP in the commercial lending space.”61 In September 2020, Zip completed the acquisition of QuadPay, a US-based BNPL company, for $296 million.62 The QuadPay app offered shoppers virtual interest-free credit up to $500 on Google Pay or Apple Wallet, which they could use for purchases at any merchant outlet. QuadPay consumers could split their payments over four instalments over six weeks.63 QuadPay had 1.5 million customers and 3,500 merchants. In the fourth quarter of 2019, the start-up achieved 1.4 million transactions,64 and QuadPay’s merchants reported a 25 per cent increase in conversion rates and 20–60 per cent increases in average order value.65 Commenting on QuadPay’s performance, The financial advisory company, the Macquarie Group Limited, mentioned that “a lack of differentiation could limit the ability for QuadPay to increase [its] customer numbers at the same rate as larger peers.”66 With the acquisition of QuadPay, Zip expected to achieve annual revenue of $180 million, 3.5 million customers, and 26,200 merchants.67 Diamond believed the QuadPay acquisition was a good deal;68 moreover, the acquisition had the potential to increase Zip’s customer base by 75 per cent and its transaction volume to $3 billion by the end of 2020.69 Diamond said, “Together, we are united in a shared vision of disrupting the outdated credit card sector with digital, fairer alternatives.”70 Commenting on the acquisition, Brad Lindenberg, co-founder and co-CEO of QuadPay, said, While there are already some big names in the market, QuadPay is by far the most technically advanced. Our technology means that merchants as large as Target or Walmart could roll out QuadPay online in a couple of days. No other installment provider offers this speed of integration and becoming part of the Zip family will provide QuadPay with access to public capital markets to support our ever-growing merchant base and transaction volumes.71 This document is authorized for use only in Ralph Kober's Case Competition at Monash University from Mar 2024 to Sep 2024.