Zip Pay unzipped: What is it and how does it work?

Zip Pay is one of several ‘buy now, pay later’ services currently operating in Australia. If you’re looking to join the 1.95 million Australians who used one of these providers in the 12 months to September 2019, how does Zip Pay stack up, and are there risks involved with paying this way?

When it comes to buy now, pay later (BNPL) services in Australia, Afterpay is the “major player” according to Roy Morgan data, with nearly 50% of Australians being aware of the service. Zip Pay comes in second with an awareness rate just shy of 30%. Here’s some information on Zip Pay, including what it is, how it works, where and when you can use it, and some considerations to help you decide whether it may be appropriate for you or not. 

What is Zip Pay?

Zip Pay is a service which provides its customers with a line of credit which they can use to make purchases at participating retailers and merchants. When you sign up, Zip Pay says its algorithm will assign you one of three initial credit limits – $350, $500, or $1,000 – based on personal and financial information you provide during the application process. 

However, depending on your credit history and financial circumstances you may not be deemed eligible for an account, or be given a credit limit lower than you were hoping for. 

The sign-up process shouldn’t take longer than five minutes, Zip Pay claims, and you may be approved and given access to funds within 24 hours. Zip Pay may also offer you an increased credit limit in the future if you demonstrate an ability to meet your repayments on time and your account never enters arrears. 

How does Zip Pay work?

Your Zip Pay account can be used to make purchases either in-store or online. If you’re shopping online, the retailer’s website will redirect you to a Zip Pay portal, through which you can log into your Zip Pay account and confirm your purchase. If you’re shopping in-store, you will need to open the Zip mobile app and generate a barcode, which can then be scanned by the salesperson in order to process your purchase. 

In both instances, you may receive an SMS or email containing a code which you will need to enter into either your browser or Zip app in order to verify your purchase. When it comes to other aspects of user and data security, Zip Pay says it uses “the same encryption that our Australian banks employ”.

How much does it cost to use Zip Pay?

Zip Pay is an interest-free service, but that doesn’t mean it’s a free service. 

It comes with a minimum monthly repayment of $40, and you will incur a $6 fee at the end of any month in which you still have money owing. However, your first 60 days are fee-free, Zip Pay says. There is also a $5 fee for missed payments, which may occur if you do not have sufficient funds in your account at the time of the direct debit. The $6 and $5 fees do not change regardless of the size of your account balance. 

So if, at the end of the month, you still owe money on your Zip Pay account, your balance will go up by $6 – this is the account-keeping fee. Furthermore, if your scheduled repayment fails because you had less than the required amount in your linked bank account, your balance will go up by $5, and you will still be on the hook for the scheduled repayment. It’s Zip Pay’s equivalent of a dishonour fee. 

Zip Pay allows you to make additional repayments of any size at your discretion, but additional repayments will not reduce or replace your scheduled monthly repayment of at least $40. 

How do I register for Zip Pay?

Before attempting to sign up for Zip Pay, you should check that you are eligible for an account. Consider also whether this is a form of credit that is suited to your financial needs, and, if you ant to avoid fees building up, whether you will be able to pay off your balance each month.

In order to be eligible for a Zip Pay account, you will need to:

  • Be at least 18 years old
  • Be an Australian citizen or permanent resident
  • Have a verified Facebook, PayPal, or LinkedIn account in your own name
  • Have a good credit history
  • Have your own valid and verifiable email address and mobile phone number

If you are eligible for an account, you can then register for Zip Pay through its website. The application process requires you to provide some personal information including financial documents or bank statements, verify your mobile phone number, and then connect either your personal Facebook, PayPal, or LinkedIn account. 

Where can Zip Pay be used?

Zip Pay can be used either online or in-store at retailers/merchants that have signed up to offer Zip Pay as a payment option. A list of participating retailers can be found on the Zip website, but some of the more prominent names include amazon.com.au, Big W, Target, and Bunnings Warehouse. 

Zip Pay isn’t limited to just making purchases from retailers; it can also be used to buy gift cards for a wide range of stores and websites. Through Zip Pay, you can buy gift vouchers of various denominations for stores including Woolworths, JB Hi-Fi and Myer. Zip Pay may also be used to pay some household bills, such as energy, water, and phone/internet , but only if the service provider offers customers the option of paying with BPAY. However, you may want to consider the merits of paying for basic utilities with a buy now, pay later service – you may potentially be better off simply paying these potentially significant costs up front. 

Is Zip Pay appropriate for you? 

At the end of the day, Zip Pay is a way of borrowing money. And as with any other credit or loan product, you should consider the pros and cons before applying for an account. 

Potential pros

  • Simple application process and relatively quick approvals , Zip Pay claims
  • Interest-free (although Zip Pay’s sister service Zip Money operates under a different system and does charges interest but offers higher credit limits)
  • 60 days fee-free
  • Allows additional repayments above the minumum

Potential cons

  • Not accepted everywhere: Zip Pay is accepted at a relatively small number of retailers (just over 8,000, and many of them online-only). This means that relying on Zip Pay as a primary line of credit may prove less than ideal depending on your shopping preferences. 
  • Requires linking a social media account, which you may not be comfortable with for privacy reasons
  • Retailers offering Zip Pay as a payment option may only accept it onlineWhile Zip Pay is an interest-free line of credit, if you can’t meet the $40 minimum monthly repayment, you will incur a fee. These fees could add up to a significant amount over time.

Again, it’s worth keeping in mind that Zip Pay is a line of credit, and using it involves taking on debt. Canstar money expert Effie Zahos warns that Zip Pay and similar services “may not charge interest, but make no mistake, buy now pay later can potentially get you into just as much trouble as a credit card.”

According to Ms Zahos, the nature of these services can encourage individuals to spend more than they usually would, and this may result in inadvisable spending habits. 

Furthermore, Credit Savvy warns that taking on more debt than you can handle may have a negative impact on your credit score, which could cause further financial issues down the road.

If you’re currently comparing credit cards, the comparison table below displays some of the low interest credit cards currently available on Canstar’s database for Australians looking to spend around $2,000 per month. Please note that this table features links direct to the provider’s website, and is sorted by Star Rating (highest to lowest), followed by provider name (alphabetical). Use Canstar’s credit card comparison selector to view a wider range of credit cards.

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