Credit card switch off just getting started, says ZipCo CEO Larry Diamond

Zip CEO Larry Diamond says the pandemic has brought e-commerce forward by up to five years and that’s only accelerating the move away from credit cards.

ZipMoney co-founder Larry Diamond. Picture: Supplied.

The buy now pay later sector’s disruption of credit cards is only getting started, says Zip Co Chief Larry Diamond, who has Australia’s 16 million credit card account holders firmly in his sights.

Speaking to Bloomberg TV on Monday as the company entered the ASX 200, Mr Diamond said that Zip’s success throughout the height of the COVID-19 pandemic validated its business model.

“When COVID-19 started out in early March, like many boards we were really unsure with how things would play out,” Mr Diamond said.

“But it’s been really encouraging to see the data over the last three to six months.”

Zip Co offers buy now pay later services for purchases under $1000 and low-cost lending for amounts of more than $1000.

Mr Diamond said that as well as increased consumption and customer growth – up 67 per cent to 2.1 million customers in 2020 – the company’s credit business had been performing strongly.

The pandemic had brought a switch to online shopping that had in turn exposed Zip to a lot of new potential customers, he said.

But the credit business had also been performing strongly. “We’ve seen some of our largest repayment months over the past six months,” Mr Diamond said.

“Customers have been paying back quickly and recycling that capital quickly and we’ve seen our lowest arrears over the last six years.”

Mr Diamond said that the impact of the pandemic has accelerated the e-commerce revolution by three to five years in Australia and that the corresponding decline in credit card usage “is only getting started”.

“There are 16 million credit card accounts in Australia; we believe the addressable market is that plus, of course, the debit card population where many of the customers joining Zip do not have a credit card,” Mr Diamond said. PayPal's entrance to the BNPL market was “a great validation for the sector,” he said.

“Our view is that a rising tide lifts all boats and so that’s a statement saying just like we saw in Australia, the credit card model is fundamentally broken.”

Challenging the credit card industry will also be a key strategy in the company’s expansion into the US market through its recent acquisition of US BNPL provider QuadPay.

“This phenomenon that we’ve seen in Australia where we’ve seen the credit card model fundamentally broken and we’ve seen this flight to online and flight away from the unfair credit card, we see as a global phenomenon,” Mr Diamond said.

Zip Co also has plans to launch in the UK this year and is looking at options for further expansion in South Africa, but will not be entering the much more competitive South East Asian market in the near future, Mr Diamond said.

On the question of regulatory oversight, Mr Diamond said Zip supported “minimum standards” across the BNPL sector and was encouraged by messaging from Australian authorities.

“We also do advocate for regulation meeting innovation and innovation meeting regulation, and we’re very encouraged by what we have seen in Australia over the past 24 months with respect to the Senate inquiry and also ASIC’s intervention powers,” he said.

Shares in Zip Co closed down 1.8 per cent on Monday at $6.05.