Insights for Investors by Investors

BNPL – Can Zip Co (ASX: Z1P) catch Afterpay (ASX: APT)?


Afterpay this, Afterpay that… what started five years ago as a small payments platform quickly became one of Australia’s most valuable and iconic companies. Afterpay listed at $1.00 only a few years ago (April 2016), and on today’s numbers is worth a staggering $41.7 billion at $150 a share. That is an astronomical gain of 14,900 per cent, if you had bought-in on the initial public offering (IPO). 

Afterpay effectively spawned the “buy now, pay later” world (BNPL), in its digital form.

Afterpay is the largest BNPL business in the world riding on the back of its first-mover advantage. While it started off in Australia, Afterpay has expanded to North America to deliver most of its growth both in 2020 and going forward. An Australian Securities & Investments Commission (ASIC) report on the BNPL industry in November 2020 revealed the substantial growth of the sector in Australia. The number of BNPL transactions increased from 16.8 million in the 2017-18 financial year to 32 million in 2018-19, representing an increase of 90 per cent. The number of BNPL providers ballooned with new entrants joining the ranks every month. The main BNPL companies around the world are: Afterpay, Zip Co. Affirm, Brighte, Bundll, Humm, Klarna, Latitude Pay, Laybuy, OpenPay, IOUpay, Payright, Sezzle, Splitit, Zip Money.

Zip Co (Z1P) is the second largest BNPL operator and holds roughly a 20.5 per cent market share. Working off the same model and offering essentially the same type of service as Afterpay, ZipPay allows customers to purchase now and pay later on a weekly, fortnightly, or monthly basis. ZipPay is more like a digital wallet with an allowance of up to $1,000. But again, it’s interest-free. Zip, is available for purchases under $1,000, and Zip Money, available for purchases over $1,000. Using Zip – A customer’s credit rating will only be impacted if they do default on their repayments. 


On an operational level, both companies are almost identical. They both have a point-of-sale credit offering for the payment of goods and services, making it easy for merchants to use.

The question on everyone’s mind is whether Zip or Afterpay is better-placed going forward.


Afterpay and Zip are both a very similar offering. Interest-free, revolving line of credit with one repayment covering all of your orders. Afterpay is by far the global market leader with first-mover advantage. Not only do its customer numbers lead in Australia but also in the US with roughly 7.3 million customers (US 3.6m, Australia 3.1m and UK 0.6m), targeting 9.5 million at the end of June 2021.

Zip comes in at second best. However, there is a long line of BNPL contenders determined to knock Zip off its spot, such as Swedish player Klarna, which has 85 million customers. Zip is the fastest growing operator at the moment with its recent purchase of Quadpay in the US adding 2.2 million customers to its base. With more than 5.7 million customers, the platform is not far off APT’s 7.3 million. Z1P reported an 88 per cent uptick in revenue for the December quarter, coming primarily from QuadPay. Shares rallied quite hard on the back of this announcement. There is massive upside potential for Zip to close the gap, with the company looking to launch in the UK and accelerate its growth in the US. Afterpay has coverage in UK and is looking at European expansion.

There is one big difference between the two platforms, Afterpay does not credit-check its customers. Instead, it conducts its own ‘credit check’ on an ongoing basis. Some analysts say the day will come when ASIC draws a line in the sand and increases regulation on the sector, potentially impacting on Afterpay’s growth. Nothing to worry about now, but worth keeping in the back of your mind.

The key to Zip’s future success and price growth will be dependent on how well it can convince the big US hedge funds to supercharge growth. Zip is also considering a potential US listing. According to the Australian Financial Review, “Zip shares trade at 12.4 times forward revenue, while rival Afterpay is three times more, expensive at 39.2-times.” If Zip were to offer US investors an American depositary receipt (ADR) by a US bank, it could also close the gap.

Both companies are due to post results on 25 February and both should post outstanding results due to the COVID-19 sales boost and US expansion. Afterpay is clearly the bigger gorilla with closer to 9 million subscribers expected, compared to Zip’s 7 million. The gap between the two stocks relative to share price and market capitalisation is quite large. Both companies are currently loss-making at a net profit level and trade on negative PE ratios. So, trying to compare on a traditional valuation basis shows both stocks in the expensive tier.

Investor FOMO (“fear of missing out”) is what is pushing both share prices higher, and it’s likely to continue to do so. The bottom line is: If Zip continues to expand successfully, the gap between it and Afterpay will close.

The nuts and bolts

In the table below we have collated the key characteristics of both companies for comparison:


On a final note, it’s worth considering the role that BNPL is actually playing in the market. While many headlines on the risk of predatory lending, the trends are clearly showing that BNPL users are actually leaving higher-interest, more punitive credit card debt.

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