Shares of ‘buy now, pay later’ payment provider Zip Co Ltd [ASX:Z1P] have seen an impressive spike today, up a respectable 10.96% at time of writing.
This morning, the company announced its entry into an acquisition of 100% of the shares of PartPay Limited.
PartPay is a New Zealand-based digital alternative payments company whose instalment plan is integrated in over 1,000 retailers, including The Ware House Group — NZ’s leading retail group.
Zip has simultaneously agreed to acquire equity interest in QuadPay Inc, a New York based ‘buy now, pay later’ provider.
It seems Zip are keen on establishing an overseas presence to lessen the $5 billion valuation gap between themselves and ‘buy now, pay later’ giant, Afterpay Touch Group Ltd [ASX:APT].
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Zip set for global expansion
According to the announcement, the PartPay acquisition provides exposure not only to New Zealand, but also the UK, the US and South Africa.
This reach comes from PartPay’s codebase being exchanged with QuadPay and the South African Payflex for stakes in each company.
Zip CEO and MD Larry Diamond has called this transaction ‘the beginning of Zip’s global expansion story’.
Zip’s acquisition of PartPay involves an upfront consideration of NZ$50.8 million, with an earn-out of up to an additional NZ$15 million.
Zip will pay the consideration through the issuing of new fully paid ordinary shares, subject to shareholder approval.
Their QuadPay investment will cost Zip US$11.4 million in exchange for a 15% stake in the company.
Will Zip be strong enough to truly rival Afterpay?
While global reach is likely the main reason for this acquisition, Zip may find other features of PartPay appealing in terms of it challenging Afterpay.
For one thing, both PartPay and Afterpay are instalment products, whereas Zip’s ZipPay service is account-based.
And while it’s understood that Zip aren’t intending to rollout the PartPay model alongside ZipPay in Australia, they are ‘attracted’ to the idea of the instalment model in offshore markets.
The success of Afterpay and Swedish company Klarna, who have both experienced strong growth in overseas markets, are likely models for the appeal.
One thing PartPay and Zip have over Afterpay is their customer verification process. Both companies check credit files of customers before allowing them to use the digital payment service.
So it really does seem PartPay is the best fit for Zip in regards to clawing their way closer to sharing the top fintech spot with Afterpay.
Mr Diamon even notes the ‘clear and strong alignment’ between the two companies’ ‘philosophy on responsible credit’.
But a better gauge of competitor potential may come in full-year results.
Zip’s FY19 figures are expected to be released on Thursday, and Afterpay’s are expected the following Wednesday.
We’ll be keeping a close eye on them.
For Money Morning
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