Zip Co shares surge as NZ deal marks first step in ‘global expansion’

Zip Co has joined the global race for instalment payments dominance by snapping up NZ’s PartPay.

Zip Co managing director Larry Diamond. Picture: Supplied

Credit card disrupter Zip Co has joined the race for dominance in global instalment payments, acquiring the Auckland-based provider PartPay in a scrip deal worth $NZ50.8 million ($48.1m) that gives the group a footprint in Britain, the US, NZ and South Africa.

Shares in the Afterpay competitor (Z1P) shot up as much as 9 per cent in early trade after the deal was announced.

Zip chief executive Larry Diamond said the deal was only the beginning of Zip’s plan for global expansion.

“We have the opportunity to strike smart, global, strategic deals to accelerate growth in the UK and the US, either on the retail side or with banks looking for an instalment solution,” Mr Diamond told The Australian.

“We’ve acquired a portable technology platform that takes 1-2 years off our timetable for offshore expansion.

“Most of the markets we’re looking at are still in their infancy.”

Fast growing buy now, pay later platforms operated by Zip’s local rival Afterpay and Swedish group Klarna, in which Commonwealth Bank invested $US100m in a recent funding round, are engaged in a land grab in key global markets.

While Zip has so far concentrated on the domestic market, it has now been cashflow positive for six consecutive quarters.

PartPay was established in January 2017 and is a significant instalment player in New Zealand after striking merchant partnerships with The Warehouse Group, the country’s leading retail group, TheMarket, its leading online marketplace, and New Zealand’s biggest telco, Spark.

Like Zip, PartPay has been conducting identity and credit checks from inception.

PartPay will accept Zip shares for the upfront consideration of $NZ50.8m, along with an earn-out of up to $NZ15m based on agreed performance milestones for the 2020 and 2021 financial years.

The deal is subject to the approval of Zip shareholders, and will result in PartPay’s owners emerging with a 5 per cent stake in Zip.

Apart from its NZ business, PartPay has a fully operational but early-stage UK operation, which Zip said was ready to scale up.

The company’s technology has also been successfully deployed into other international markets, where Zip secured strategic stakes in buy now, pay later operators in exchange for its codebase.

In the US, PartPay got an 8.9 per cent stake in New York-based QuadPay, which is growing fast but lags well behind the likes of Klarna and Afterpay.

The company also has a 24.7 per cent stake in Johannesburg-based Payflex — the first instalment payments player in the South African market.

Zip has agreed to invest a further $US11.4m in QuadPay, giving it a fully diluted, 15 per cent interest in the US group.

Mr Diamond said there was significant upside for Zip in the Australian market.

“(But) we feel the timing is opportune to begin investing abroad as we see seek to build a global payments business,” he said.

“PartPay has proven experience launching their technology in four different markets, and the potential for many more.

“There is clear and strong alignment between PartPay’s and Zip’s philosophy on responsible credit, and we look forward to working with PartPay’s highly capable management team as we grow our market share in New Zealand and expand into the UK.”

At 1.08pm (AEST), shares in Zip Co were trading 8.64 per cent higher at $3.27 each.