How Does Zip Make Money? Business Model of Zip

How Does Zip Make Money

Zip, formerly QuadPay, is a buy now, pay later company offering financing solutions to users. Zip primarily makes money via merchant fees. It also makes money from platform fees and late fees.

Founded in 2017 by Brad Lindenberg and Adam Ezra, QuadPay offered users a convenient alternative to traditional credit. In 2020, it was acquired by Zip Co. for $296 million.[1] The QuadPay and Zip brands merged together under one name, and now the company is simply called Zip.[2]

Zip currently operates in six different countries – the United States, the United Kingdom, Australia, Canada, New Zealand, and Mexico. It is one of the few buy now, pay later companies that allows users to make transactions larger than their credit limit.

Currently, Zip has over 11 million customers worldwide.

What is Zip & How Does It Work?

Zip (formerly QuadPay) is a buy now, pay later (BNPL) platform. It allows users to split their payments into four equal installments that are paid back over a period of six weeks.

Unlike some other BNPL services, Zip doesn’t limit users to particular marketplaces or partner stores. Instead, it allows its customers to use the service as they would a credit or debit card. Any merchant that accepts Visa will also accept payments via Zip. The service provides users with a one-time prepaid card whose value is allocated during checkout.

Users input the order value based on the price given to them by the merchant. Then, Zip provides them with a virtual Visa card through its mobile app. Certain partner stores have a Zip checkout option that allows users to select Zip as the payment processor for a more seamless experience.

The Zip app also has an in-store payment tab that users can select while visiting brick-and-mortar locations. During checkout, they input the order value and create a purchase request. Zip provides them with a payment summary that shows the upfront payment and installment dates.

After agreeing to the payment terms, users get a virtual card. This virtual card can be scanned into Apple Pay or Google Wallet. If a merchant doesn’t accept Apple or Google Pay, users can input the virtual card details manually.

While making a purchase request on Zip, users must ensure that their desired amount includes taxes and shipping. Zip virtual cards are one-time use only, so they should not be saved in Apple or Google Pay. The company also has restricted item categories for which it won’t provide financing.

Some of these restricted items include cannabis, guns, ammunition, and vaping products. In most cases, Zip breaks down the payment into four equal installments. Each should be 25% of the total order value, with the user paying the first installment upfront.

However, in certain cases, the initial installment value might be higher than 25%. This is decided automatically by Zip’s algorithm based on spending patterns, location, financial conditions, and creditworthiness. Zip doesn’t provide an open line of credit. Each transaction is unique and reviewed separately for approval.

To get a credit limit, users must first sign up using the Zip app. US customers must be at least 18 years old and have a phone number for identity verification. Once a user has entered their name and phone number, Zip sends a code via SMS.

Occasionally, Zip will ask for the last four digits of a user’s social security number (SSN). After authenticating their identity, users enter a date of birth and billing address. In order to use Zip, they must have a valid US debit or credit card that is linked to a bank account.

Finally, Zip will use the provided data to determine a user’s creditworthiness. This process is extremely fast, and is finished within seconds. The credit score isn’t impacted since Zip doesn’t conduct hard credit checks.

The platform charges a $1 convenience fee on each installment, resulting in a total of $4 for all four installments. A late fee is also applied when users miss their due dates. This can be up to $7 for each installment.

Currently, Zip is partnered with several major retailers like Best Buy, Newegg, and GameStop. Partnered stores have Zip available as a payment option during checkout. Non-partner stores can be paid by using a virtual card or gift card.

Most users on Zip get a starting credit limit of up to $1,000. As they make purchases, this limit goes down. With some stores and item types, Zip allows users to make a large first installment that goes above the regular 25% limit.

This feature allows users to buy items or services that would otherwise not fit into their Zip spending limit. To use this feature, users must first place a spend request that is larger than their available limit. Zip also allows users to make manual repayments before their due date.

To make manual repayments, users can open the customer portal in a web browser and view their order history. Here, Zip displays orders along with their amount and ID.

The same process can also be carried out within the app to make advance payments for installments. Repaying before the due date doesn’t carry any additional charges. Timely repayments

Zip also has a Chrome extension that allows the user to access all of its services directly from the browser. This extension allows users to sign into their Zip account on the desktop and make easy payments using their virtual card.

If users want to buy gift cards, they can do so on a merchant site using their Zip balance. However, Zip recommends that users purchase gift cards through its website for more consistent pricing.

Recently, Zip has also released a physical version of its pre-charged cards. It is only available through a waitlist right now. Users can sign up from the home page of their Zip mobile app.


Business Model of Zip

Zip (formerly QuadPay) has a business model similar to many other buy now, pay later services such as Klarna and Afterpay. It attracts users by offering them a simple installment-based payment option for their favorite brands and retailers. Users don’t need a good credit history in order to be approved for a spending limit.

The service can be used on any merchant site as long as they accept Visa. Zip allows users to pay back their debt through four separate installments. To simplify things for the user, each installment is a fixed 25% of the total order value and has to be paid in two-week intervals.

By using Zip, users who are low on cash can make payments on commodities that they couldn’t otherwise afford. This includes essentials like groceries, gas, and rent. Zip attracts a young adult demographic, comprised primarily of people who desire a quick and easy line of credit without any hassle.

Zip doesn’t have a lengthy application process and only requires basic details like a user’s phone number and social security. By making the onboarding process short and sweet, Zip converts a high percentage of visitors. Even if they don’t use the service right away, Zip encourages them to stay signed on for future purchases in their favorite stores.

The company is partnered with merchants who offer Zip as a payment option during checkout, alongside other options like debit and credit cards. Paying with Zip is a much faster process than manually entering data from a card or going through internet banking. Its convenience and transparent pricing structure make Zip an alternative to traditional payment methods.

Zip also differentiates itself from other BNPL services by giving users the option to overpay on their first installment. This option is only available when a user tries to make a purchase that extends beyond their available spending limit. They pay extra on the first installment and the remaining three are divided into equal amounts as usual.

By allowing users to spend more than the displayed limit, Zip generates high-value customers and higher average orders for merchants. On average, Zip basket sizes are 20% higher than that of users who pay using conventional methods.[3] Zip also drives higher conversion rates for its merchant partners.

The algorithm automatically adjusts users’ spending limit based on payment history and financial data. Zip’s app provides a unique buying experience since it generates a virtual pre-charged card for each order. Users can also request a physical card which is something that many other BNPL companies don’t provide.

Since Zip individually approves each order and doesn’t actually provide a continuous line of credit, it minimizes loss potential from those that default on their payments. Zip makes money based on transaction volume since it charges a convenience fee of $1 for each installment. Installments are applied to individual orders rather than the spending limit as a whole.

To boost order volume, Zip provides a new pre-charged virtual card for each transaction. Users who own a Zip physical card can swipe it at a store or gas station as they would any other card. Zip doesn’t have any hidden charges on top of its $1 convenience fee for each installment.

Hence, customers making lots of small purchases often prefer to pay with Zip instead of their credit card. Zip does charge a late fee of up to $7 per installment, which acts as another revenue source for the company. However, Zip users tend to repay on time because of how the spending limit is calculated for each individual order.

Zip’s streamlined application process, low credit requirements, and transparent pricing structure make it a very popular payment service. It is used by over 11.4 million customers around the world and is partnered with more than 90,000 merchants. The more customers Zip gets, the more merchants are willing to sign up for the service.

Every time a customer makes a transaction using their Zip balance with a partnered merchant, Zip earns a portion of the amount. It is a similar model to the interchange fees charged by Visa and Mastercard to merchants. ZIP’s API is easy to integrate, and merchants increase their conversion rate by 20% or more.

Zip’s biggest rival is Klarna as they offer similar services. Klarna is more likely to offer a higher credit limit. It also has more flexible financing options, with plans that go up to 24 months.

However, Klarna does charge interest on these extended financing plans. Zip is a better choice for users who make small purchases and want no additional charges.

Zip has significant operating costs. These include hosting, infrastructure, amortization, marketing, salary, and acquisition costs. In 2021, the company spent $861.8 million on operating expenses.[4]

Most of the operating expenses were related to net adjustments from the QuadPay acquisition. These amounted to $306.2 million. Share-based payments accounted for a further $142.8 million in expenses.[5]

The amortization of intangible assets cost $85.9 million. Marketing expenses took up $71.2 million. Salaries and employee benefits cost $97.6 million.[6]


How Does Zip Make Money?

Zip (formerly QuadPay) makes money from three different revenue streams. These are platform fees, late fees, and merchant fees.

The company doesn’t break down how much it earns from each revenue stream in its report.

Platform Fees

Every time a user places an order through Zip, they pay the money back in four installments. Zip charges a $1 fee on each installment, irrespective of the order amount. This effectively amounts to an interest rate.

This fee is charged on a per-order basis rather than the spending limit as a whole. As a percentage of total order value, smaller orders incur a higher fee in comparison to larger orders. Zip benefits the most when customers place a large number of orders using their $1,000 limit.

The company provides users with a separate pre-charged virtual card for each transaction. The company makes $4 in platform fees total from each order, over the course of four installments.


Late Fees

Whenever a customer fails to repay their dues on time, Zip charges a late payment fee. This can vary and goes up to $7 for each installment that the customer is late in paying. These fees can add up quickly depending on how many unique orders a user has placed.


Merchant Fees

Merchants pay a percentage of the total order value as a transaction fee every time a user places an order using Zip. This is similar to the interchange fee on credit and debit cards. Zip provides merchants with a larger customer pool than they would normally have.

As the company also improves user retention over time, merchants are willing to pay a small transaction fee on each order. In exchange, they see improvements in order volume and gain high-value customers who spend more.


Zip Funding, Valuation & Revenue

In 2020, QuadPay was acquired by Zip Co., which merged it with their Zip payment services under a single brand.[7] Zip Co. (ZIP) is a publicly traded company on the Australian Stock Exchange (ASX). As of October 2022, the company’s stock traded just over $0.6 at a valuation of $461 million.

The QuadPay acquisition helped Zip raise $130 million in a 2020 funding round.[8] After going public, Zip has raised $893.6 million over eight post-IPO funding rounds between 2015 and 2021. Notable investors include Victor Park Capital, Westpac, National Australia Bank, and FIIG Securities.[9]

In 2021, Zip had a total revenue of $397.5 million. It also lost $658.7 million after operating expenses and income taxes.[10] In 2020, the company made $160 million but also had a net loss of $19.9 million.[11]

YearTotal RevenueNet Income
2019$83 million($11.1 million)
2020$160 million($19.9 million)
2021$397.5 million($658.7 million)


Is Zip Profitable?

Zip (formerly QuadPay) is not profitable. The company has been losing money for the last three years. In 2021, It had a net loss of $658.7 million from a total revenue of $397.5 million.[12]

Most of Zip’s losses in 2021 were due to adjustments from their QuadPay acquisition in 2020. But the company also had a net loss of $19.9 million in 2020 and a net loss of $11.1 million in 2019.[13] The company has been focused on growth for a long time and is starting to pivot towards becoming a profitable business.

The company is looking to reprice merchant agreements and close unprofitable international businesses in an attempt to cut down on operating costs. In August 2022, Zip announced that it would exit the UK market.[14] It is possible that Zip will become profitable in the future if it manages to reduce operating costs and improve the value it provides in comparison to competitors.



So there you have it: a primer on how Zip makes money.

Zip’s business model allows customers to buy more expensive items without having to pay for them all at once. Instead, they can pay for them over time, making it easier for them to afford these items without taking out loans or credit cards from banks.

As you can see from the information we’ve provided here, Zip is easy to use and convenient for shoppers. It’s also a great way for brands and retailers to keep their customers happy—and loyal!

That’s all for today! We hope that you’re as excited as we are to see Zip’s growth and success in the coming years. If you have any questions about our analysis or want to learn more about Zip, please let us know. We’d love to hear from you!

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  1. Fintech Futures
  3. Zip
  4. Zip
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  9. Crunchbase
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  11. Zip
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  14. Marketwatch

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