Zip unveils strategic agreement with Amazon in time for the holiday season

Buy Now Pay Later (BNPL) business Zip Co (ASX: Z1P) has secured a strategic deal with Amazon, the world’s largest online retailer, which will see its flexible payments services made available to Amazon.com.au customers as of today.

The agreement means that Zip now becomes Amazon’s first Australian payment option for shoppers and is expected to boost both companies’ sales revenues as a result.

Currently, Zip offers a range of integrated retail finance solutions to businesses across numerous industries, both online and in-store. Its brands include Zip Pay, Zip Money and Pocketbook with all services being entirely digital and leveraging Big Data throughout its platform infrastructure.

The concept of Big Data is a relatively new concept that refers to businesses handling unfathomably large and complex data sets, especially from new data sources. The data sets are so large that traditional data software struggles to process them efficiently which means businesses cannot obtain an accurate assessment of their customers and their behaviour.

For Zip, Big Data is a means of obtaining a better estimate of customer creditworthiness.

As a company, Zip is focused on leveraging enlarged data sets to analyse and systematically harness the information it extracts – in order to address existing issues such as credit card fraud, conducting accurate credit checks and to deliver real-time responses to consumers that are hoping to obtain lines of credit.

Product offering

Zip’s core offering is providing a “revolving line of credit” for customers to finance their retail purchases. The agreement with Amazon is therefore major news for the company, given the large number of customers currently being processed by Amazon’s online sale channels.

For Amazon, the benefit will be a greatly enhanced ability to offer more products to more people seeing as Zip removes the need for customers to pay the entire purchase price upfront.

“This agreement puts Zip firmly on the main stage by allowing customers shopping on Amazon.com.au to use Zip to pay at their pace. The agreement delivers a fantastic experience for customers who are looking to own the way they pay,” said Zip’s chief executive officer and managing director Larry Diamond.

According to Zip, the newly-established relationship with Amazon Australia will help to actualise its broader strategic vision of providing customers with convenience and choice in how they choose to pay for everyday products, while also expanding the network of acceptance for Zip’s existing 1.5 million digital customers.

Importantly for existing investors, the commercial details of the strategic agreement include the issuance of 14.615 million shares offered to an Amazon affiliate as warrants. Zip reported that the exercise price for each warrant will be $4.70 with yesterday’s closing price being $3.44 per share.

Furthermore, 25% of the share issuance will vest concurrently with Zip’s entry into the strategic agreement, and the remainder will be subject to vesting milestones based on processed volumes.

Also, the agreement terms stipulate that the warrants can be exercised at “any time” until 2026 but will also remain subject to applicable vesting criteria being met. However, if the criteria are not met the warrants will expire within seven years.