UBS says Zip’s launch of its ‘Tap & Zip’ product is “significant” as it expands its available market and better positions it should buy now pay later providers be prevented from imposing ‘no surcharge’ rules.

Zip has extended its ‘shop anywhere’ functionality into physical stores, announcing deals with Visa, Apple and Google on Tuesday, lifting its stock price as Afterpay also surged on the back of a deal with Westpac.

Zip said its new ‘Tap & Zip’ feature would allow buy now, pay later to be accepted by many more retailers, by allowing Zip to be used wherever a Visa card can be.

Zip has been granted a ‘principal issuer license’ with Visa, and also said Apple Pay and Google Pay will work on its app from Tuesday.

The broker acknowledged the deal is “difficult to quantify”, but says the product increases Zip’s total addressable market “materially” given BNPL is available at only 13 per cent of merchants.

Peter Gray and Larry Diamond, founders of Zip James Brickwood

UBS says its sees some risk of cannibalisation from higher margin transactions processed via the Zip platform, where it estimates Zip generates merchant fees of between 2 per cent and 3 per cent on average, to lower margin interchange .

“We also see a risk to future merchant growth given Zip’s customers can now access such merchants without paying a higher fee, though going forward we still believe merchants will continue to integrate directly with Zip where there is a clear benefit to the merchant from marketing directly to Zip’s customers.”

UBS says Zip’s new products is further evidence of competition in the BNPL space, and highlight this product’s cost to the system is materially lower than Afterpay’s (where merchant fees range from 3 per cent to 7 per cent, depending on the size of the retailer).

The broker noes that while it is illegal for Zip to prevent merchants from surcharging for its ‘Tap & Zip’ product, it is currently not illegal for Afterpay to do so for its offering, despite Afterpay’s materially higher costs at the system level.

“Zip’s move to place less reliance on merchant fees and even more reliance fees on consumers funding the economics of their payment choice therefore means that Zip is better positioned in a scenario where BNPL providers are prevented from imposing ‘no surcharge’ clauses in their merchant agreements, given Zip’s overall cost to the system is lower.”


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