Zip Co Ltd (Z1P) CEO and Co-Founder, Larry Diamond

Zip Co Ltd (Z1P) CEO and Co-Founder, Larry Diamond speaks with Tom Piotrowski about the company’s quarterly update, strength of its US platform ‘QuadPay’, views on migration from credit card spending to BNPL sector and the company’s expansion strategy.

14 Apr 2021



[MUSIC PLAYING] TOM PIOTROWSKI: Thanks for joining us for the Executive Series. Today I'm speaking with Larry Diamond, who is the head of Zip Co. Larry, it's quite the landmark quarter that you've had, the third quarter. I suppose what's interesting is when you compare the situation to where we were a year ago, in terms of the beginning of the pandemic. If you had to have fast-forwarded a year to consider where the organisation might be, would you ever guess that it would be along these lines?

LARRY DIAMOND: If we were sitting there as the pandemic was hitting, absolutely not. I mean, you couldn't-- you couldn't have predicted that we'd be here, you know, with the global business and the US doing so incredibly well. Because, really, pre-pandemic, our business was an Australia and New Zealand story, with a little bit of UK getting going.

But to kind of be here a year later, where the US is an absolute stand out, one of the number one downloaded BNPL apps in the country. Showing those figures, I think, is absolutely remarkable and, you know, we're privileged to have had these factors in our tailwind, both the online spend and the credit patterns. And there has been a lot of pain out there, so I think we're very privileged to be here.

TOM PIOTROWSKI: What is interesting is to un-tease the situation that relates to stimulus, the spending, in terms of being at home and having to do it all online. But then there's the biggest secular story as well, in terms of the decline of credit card spending and the adoption of BNPL. How do you rationalise all of those things?

LARRY DIAMOND: Yeah, I think if you look at Australia as a perfect example, when we started, credit card receivables were north of $50 billion. And here we are, and they've collapsed almost by 40%. The average age of a credit card holder in Australia is about 52.


LARRY DIAMOND: So this phenomenon that we saw here--

TOM PIOTROWSKI: That's old, right?

LARRY DIAMOND: Oh, that's-- that's not that old.


It's just beginning in the States, and that's what we've kind of seen here. Youngsters or millennials, post-millennials-- they tend to shop online. That's their first interaction. So naturally, if they see these products-- they're at the Amazon check-out, the JB Hi-Fi checkout, they're going to sign up to it. And so I think that phenomenon, because we live there, has picked up.

And the credit card is really a broken product. You know, it encourages users to build up huge balances where the back-end interest rates haven't moved when we have the lowest cash rate in 50 years. The products are really unfair. And this phenomenon that we saw here in Australia is really only beginning in the US, you know. Here, 20% of checkout might be going through buy now pay later, whereas in America it's only 1% to 2%. So that's why we are so excited because the results have been great, but we're only at the beginning of that story.

TOM PIOTROWSKI: So obviously, a real inflexion point in the story has been the acquisition of Quadpay.


TOM PIOTROWSKI: And that has really driven the business in the US. What has stood out in the last couple of quarters in particular, given the fact that you've had organisations like PayPal launch products in that time period, as well? So what are your observations?

LARRY DIAMOND: Yeah. Look, we want to thank PayPal for launching, you know? Thank you. The awareness of buy now, pay later was still very, very small over in the States, and I think what this has done is really just lifted up the hood and shown how important this sector is.

But I think there's a lot of differences here, you know? Our business has lived and breathed buy now, pay later for seven years. We think about every stage of the customer journey. And so whether you're looking on the product detail page or you're at checkout thinking about how do you underwrite and approve and drive conversion, and that's what-- and that's what I think the US guys know unbelievably well.

So big players coming in, like PayPal, haven't spent enough time really thinking about how the customer journey comes together. But I think what they've done so well is the US in particular, the app is viral. And so that's really underpinning this story.

You can check out with Quadpay, but then you can also buy now, pay later everywhere. And so this ability to pay everywhere is very different to the other providers. And they're releasing features week after week. Very, very exciting.

TOM PIOTROWSKI: So this is obviously important, not only in terms of continuing to penetrate into the American market, but you've intimated that this is going to be an important vector in terms of getting into other jurisdictions, geographically Canada, for example. You'd think it's kind of similar to the US market, but Canadians are a little bit different.

LARRY DIAMOND: We're all a little bit different. But we're close to Canadia. Look, this is amazing. And the technology stack that we acquired with Quadpay is very lightweight, market-leading microservices. It is so easy to enter a new market. It's really easy to roll out new features.

If you look at the roadmap in the US, what's coming is incredibly exciting because lots of small teams are working on it and releasing. So moving into Canada actually happened over a month, right, because the technology is being built so, so well. And I think if we can become that stripe of buy now, pay later where you can just roll out in any market, but, more importantly, where you can roll out new products and features. Right now we have a "pay in four" in the states. How do we do "pay in three," "pay in six," "pay in 12?"


LARRY DIAMOND: How do we demand-gen and other products that can go into the wallet? And these guys should be able to release faster than anyone else. And we are Zip, so we have to move faster than everyone else.

TOM PIOTROWSKI: Indeed. You've spoken about rolling out into the Philippines. Why is that market an area that you would choose?

LARRY DIAMOND: Look, you know, our philosophy around investment has always been 80, 15, 5. So 80% of our capital is going into the US and these growth markets, 10% to 15% into adjacencies, and then we have 5% that we're investing in buy now, pay later which will have payoff in 36, 48 months.

And so we look for teams that we really like-- good, good founders. You know, we put a small investment in. We stay close. We learn the region. And then it gives us options later on.

So we've done that in the Philippines. We've done that in Eastern Europe. We've done that in the Middle East, and South Africa as well. And so we have ambitions in 10 years to have 100 million monthly active users, not just in the developed world but the developing world. But we're going to take time before we get out there.

TOM PIOTROWSKI: Speaking of capital use, the rate at which things are growing in the US could very well mean that call on capital is going to be a bit greater in the medium term. What are your thoughts on that?

LARRY DIAMOND: That's quite interesting. The US, while it is the biggest growth area, it's also the most profitable area for us as well. So if you look at the unit economics of that business-- world-class in terms of transaction margin, net transaction margin is north of 2%-- and because the technology has been built so well, you don't need thousands of individuals to run it.

And so the operating leverage time to come through now has actually made that a very, very profitable business. We obviously need capital for the loan book, but because it recycles faster in Australia, every 30 days, and we've got a great facility with Goldman Sachs, that can carry us for the next year plus. So very efficient business. But we are going to allocate from our recent capital raise last year, and we have got money allocated to growth opportunities in America working with retail partners and adding on more teams.

TOM PIOTROWSKI: It's been a pretty volatile space, the BNPL cohort, over the course of the last three or four months in particular. We've got a lot of customers, CommSec customers, that are very much oriented towards these sorts of stocks. How important is it to communicate with them?

LARRY DIAMOND: Listen, we are hugely appreciative of the base that we have here in Australia and I think what's really lucky is the product that we have consumers can actually touch and feel. Check out with Amazon or check out everywhere you go, which means that everyone can see and feel and touch it, which makes it more interesting to invest. We keep looking at our register and we have got well over 100,000 investors and a lot of them are CommSec-- CommSec investors.

We want to say a big thank you to everyone who's supported the story. We've got a long way to go and we also want to create more outreach because we spend a lot of time with institutional investors, and that's important, of course. But as we've seen also here and in America, the retail base is so important. And so we see that as a great loyal base and one that we want to continue to maintain good, good dialogue with.

TOM PIOTROWSKI: Well, Larry, it's always a pleasure to talk to you. Thanks very much for making the time to chat with us.

LARRY DIAMOND: Thanks a lot, Tom. Cheers.

TOM PIOTROWSKI: And Thanks for joining us for the Executive Series.


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