The Zip Co Ltd [ASX:Z1P] announced today it has invested in leading Indian buy now, pay later (BNPL) firm ZestMoney.
Zip said ZestMoney is one of the largest and fastest growing BNPL platforms in India with almost 11 million registered users.
The ZestMoney investment aligns with Zip’s aim to build a global BNPL business that supports regional and global partners in multiple markets.
Investors were supportive of the move, with the Zip Co Ltd [ASX:Z1P] share price rising 4.8% at the time of writing.
Source: TradingView.com
But today’s bump comes after a tough year for BNPL stocks.
Major players like Zip, Sezzle Inc [ASX:SZL], and NYSE-based Affirm have been underperforming the market over the last 12 months.
Afterpay Ltd [ASX:APT] managed to spring back in recent months, following a well-received potential takeover by leading US fintech Square.
But will today’s push to India’s market spur Z1P’s share price?
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Zip enters high-growth Indian BNPL market
According to Zip, India has the potential to become one of the largest markets globally and is forecast to have US$300 billion in BNPL payment volume by FY26.
Seeking to get a foot in the door, Zip will acquire a minority stake in ZestMoney by investing US$50 million to subscribe for Series C preference shares.
Zip said it’s also negotiated terms to increase its shareholding over time.
ZestMoney currently holds 11 million registered users, with over 10,000 online merchants backed by a point of presence in 75,000 online stores.
BNPL has the potential to reach 80–100 million users by FY26 in India, surpassing the current 73 million unique credit card users in the country.
Zip Co-founder and Chief Executive Officer, Larry Diamond said:
‘We are excited to partner with ZestMoney to drive fair and responsible payment solutions in India.
‘While Buy Now, Pay Later is emerging as a preferred mode of payment globally, in India it also plays a crucial role in driving access to credit.
‘With more people using digital payments and online shopping, ZestMoney can positively impact hundreds of millions of lives in the coming years.’
Is this a good long-term move for Zip and Z1P shares?
Zip reported a jump of 150% in revenue to $403.2 million in FY21, while transaction volumes jumped 179% to $5.72 billion from $2.10 billion in FY20.
Gross profits came in at $143.57 million. But this was dwarfed by a total comprehensive loss for the FY21 of $652.50 million.
A net adjustment relating to the acquisition of US BNPL subsidiary QuadPay contributed over $300 million to the loss.
Zip ended the year with cash and cash equivalents totalling $330.20 million, well up on FY20’s total of $32.71 million.
The Aussie BNPL said it’s well-placed to continue to accelerate with ‘BNPL forecast to become the fastest growing eCommerce payment method over the next 5 years.’
While the popularity of BNPL is important — and its penetration as a payment method still has plenty of upside — it’s not sufficient to guarantee success for any individual BNPL player.
Especially when this popularity is attracting a lot of competition.
From upstarts to traditional players like the Commonwealth Bank and PayPal.
And given BNPL is still in a growth phase, it will be interesting to see how the landscape configures itself in 5–10 years.
Will banks like CBA and Suncorp launching their own BNPL offerings dent pioneers like APT and Klarna?
I’m not sure, but I do know the fintech sector is set for disruption.
Speaking of which, if you’re interested in fintech stocks, check out our report on three new small-cap fintechs with exciting growth potential.
Regards,
Kiryll Prakapenka,
For Money Morning
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