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Zip Pay and Zip Money: What is it and should you use it?

How it works, interest and fees, and the risks of using this 'buy now, pay later' service.

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Last updated: 29 January 2021
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Checked for accuracy by our qualified fact-checkers and verifiers. Find out more about fact-checking at CHOICE.

Zip is an app-based 'buy now, pay later' (BNPL) platform that can be used both instore and online. 

Zip claims to be "the good guys" who do things "better than the banks". But do they really?

Zip Money is technically a credit card and Zip Pay is not all that different from other BNPL (buy now, pay later) services. 

They do perform background checks, but fees are still high and can add up if you miss a payment or have a direct debit default, and the low minimum repayments can keep you paying off your debt for years and racking up monthly fees. 

Their claim to be interest free is true for Zip Pay, but not Zip Money. 

Their hardship policy is not transparent and we also have concerns that the Ts&Cs aren't readily available before you sign up. 

So, we think the "good guys" claim is a bunch of marketing spin.

How does Zip work?

Zip offers two products:

  • Zip Pay allows people to buy a product, get their goods straight away and pay them off over time. It sounds like a modern twist on the traditional lay-by, but it's really another form of credit. 
  • Zip Money has higher limits and is a line of credit that acts a bit more like a credit card. 

Both Zip Pay and Zip Money are accessible from the same Zip app, available for free through Google Play and the App Store, and once you're approved you can switch between your accounts.

When you buy something using Zip it gets added to your account – you don't need to pay anything upfront. Each month you'll be sent a statement detailing:

  • what you've spent and paid off
  • fees (including a $6 monthly fee when you have money owing at the end of the month, and any late fees or dishonour fees for missed payments) 
  • interest charged (if you use Zip Money)
  • how much you need to pay.

Zip lets you pay off the full amount or pay in instalments. Repayments can be weekly, fortnightly or monthly, as long as a minimum repayment of $40 is made each month for balances under $1000. For balances over $1000, or if you're using Zip Money, minimum repayments might be more.

Where you can use Zip

A growing number of stores are adding Zip Pay and Zip Money to their list of accepted payment methods, including big retailers such as Kmart, Target, Bunnings, Officeworks and Kogan. 

Zip now has over 24,500 merchants across Australia and New Zealand and you can use the service to buy all kinds of goods, from clothes to gift cards, pharmaceuticals to travel. 

Zip also has a 'Tap and Zip' feature in Zip Pay that allows customers to shop where contactless payments are accepted by linking to Apple Wallet or Google Pay.

Paying your bills using Zip

You can even use Zip to pay off eligible utility bills that can be paid via BPay in instalments. This may seem like a good idea, especially if you've had an unexpected or large bill come in. 

But given the fees (and potential interest) that Zip charges, you'll be better off financially if you contact your utility provider directly and organise a payment plan or extension with them. Investigate all of your options before paying your bills through Zip.

using zip pay on phone

Both Zip Pay and Zip Money are available through the Zip app.

Applying for Zip

The online application and approval process is pretty quick. Zip can authenticate a lot of your personal details by linking with your Facebook, LinkedIn or Paypal accounts, but you will also need to provide your mobile number, bank details and other financial or identity documents.

Zip limits

  • Zip Pay offers credit between $350 and $1500 that can be spent only at participating retailers. 
  • Zip Money offers a line of credit of up to $3000 for regular accounts and up to $50,000 for specific merchants (customers must apply through a merchant for limits higher than $3000). 

Limits are determined after successful application and you may not be granted the full limit you apply for.

Does Zip do credit checks?

Yes. Unlike some BNPL services like Afterpay, Zip does perform a background check.

They claim they conduct a credit and identity assessment, including a credit check and real-time bank verifications on both Zip Pay and Zip Money applications.

This will help them determine if you can afford to use the service and is better than putting the full responsibility on the consumer as Afterpay does, however it's possible to fall into a debt trap with any BNPL service, regardless of credit check procedures.

Can I delete my Zip account?

Yes. You can close your Zip account by contacting Zip, but only if you have no balance owing.

How does Zip make money?

Zip Pay makes money primarily in two ways: 

  1. charging customers fees 
  2. charging retailers a percentage every time a sale is processed on its platform. 

Zip Money also makes money by charging people interest on their purchases. 

In the financial year to June 2020, Zip made $156.9 million in fees and interest charged to merchants and customers, up from $82 million the year before.

In the same year Zip wrote off $53.7 million in bad and doubtful debts. This is an increase of $17 million in bad debts written off and a $14.7 million increase in the provision for expected credit losses compared to the previous year.

Zip interest and fees

Zip Pay swaps interest charges for flat fees. For every month there's a balance owing, you're hit with a $6 fee, which is equivalent to 7.3% interest annually on a $1000 debt (and the less you owe the higher the fees as a percentage of your debt). There's no monthly fee if you have no balance owing at the end of the month.

If you miss a payment or don't pay the minimum, you'll be charged a $5 late fee.

So they may not call it interest, but the monthly fees can add up.  

Zip Money on the other hand does charge interest. It's classified as a continuing line of credit, more like a credit card, and currently offers an interest-free period of three months, and promotional periods between six and 48 months depending on where you shop. After this a hefty interest rate of 19.99% is applied – higher than many credit cards. 

With high fees and high interest, Zip Money has the potential to spiral out of control

Zip Money also charges a $6 monthly fee. Add this to your high interest rate and things are starting to get expensive. And if you're 21 days in arrears of payment you'll get slugged $15. 

If you don't think you can pay off your items in the interest-free time period you might be better off with a low-interest credit card or personal loan. Or better yet, saving the money up in advance if it's a non-essential item. 

With high fees and high interest, Zip Money has the potential to spiral out of control if you get into financial strife, especially if your circumstances change. 

The difference between Zip Pay and Zip Money

Zip Pay vs Zip Money
Zip Pay Zip Money
Credit limit $350–1000 $1000–3000 (Apply through merchants for higher limits)
Interest charged None 0% interest for 3 months and promotional offers between 6 and 48 months depending where you shop. After this, 19.9%
Repayments Direct debit with credit or debit card Direct debit with debit card or bank account
Minimum repayments For credit limits between $350 and $1000, $40 a month (unless balance owing is less). For a $1500 credit limit, $80 a month (unless balance owing is less) Start at $40 per month. The higher the credit limit, the higher the minimum monthly repayment.Minimum repayment is either the amount stated on your contract or 3% or balance owing (whichever is greater)
Monthly fee $6 if balance owing at the end of the month $6 if balance owing at the end of the month
Establishment fee $0 Depending on the credit limit applied for, there may be an establishment fee (from $25 to $99)
Late fees $5 $15 after 21 days
Dishonour fee if payment rejected $15  $15
Repayments due Last day of the month Day of the month after you accepted your contract (e.g. if you accept your contract on 10 June, payments would be due 11 June each subsequent month)

What if I can't make my repayments?

If you're late making payments on either platform you'll get penalised with a late fee. 

Zip does have a hardship policy if you can't make your repayments due to changes in your financial situation, but because of the lack of regulation of BNPL products, BNPL hardship policies are generally weak in comparison to those offered by banks.

If you default on your repayments, Zip may report you to the relevant credit reporting body and this can negatively affect your credit score

Depending on your circumstances, Zip may grant temporary solutions such as postponement of payments, loan variations or a moratorium. If you do get into trouble financially make sure you get in contact with Zip right away.

You can also contact with the National Debt Helpline and speak to an independent financial counsellor for free.

Can Zip affect my credit rating?

Yes – both Zip Pay and Zip Money perform a third-party background credit check using Equifax or Illion when you apply. If you default on your repayments, Zip may report you to the relevant credit reporting body and this will negatively affect your credit score.

Risks of using Zip

Products like Zip Pay and Afterpay make spending money you don't yet have even easier. Saving up before a purchase is still the best way to go. 

While some people find BNPL services helpful tools for budgeting, they all come with financial risks, they're overwhelmingly used for non-essential purchases, and we think they normalise debt. 

One of the concerns with these types of platforms is that a line of credit may be granted to people who may not otherwise qualify for a credit card due to their financial situation. If you're financially vulnerable, in part-time or casual work, or on a low income, debt can easily spiral out of control. 

There's also nothing to stop shoppers from signing up to multiple BNPL schemes, over-committing and struggling to make repayments. According to ASIC, two in five people who buy through BNPL schemes are low-income earners and of these, two in five are students or part-time workers – all people who are potentially financially vulnerable, making these products a risky choice for them.

Here's more detail on some of the risks in using Zip.

1. Potentially high interest

While Zip Pay doesn't charge interest, Zip Money does. With both products accessible from the same app it's enticing for shoppers to step up from Zip Pay to Zip Money, but Zip Money can cost a lot more if you don't pay off your balance in the interest-free period. 

For this reason, it would be cheaper to save up in advance for the item in question or shop around for a low-cost credit card rather than use Zip Money. Banks and their credit products are more heavily regulated than BNPL services so you also have more options if you experience financial hardship.

2. Low minimum repayments can lead to long-term debt

With low minimum monthly repayments, it could take users of Zip Pay a long time to pay off their debt. For example, if you owed $1000 on your Zip Pay account and made only the minimum repayment of $40 a month, it would take 2.5 years and cost you $174 in fees – and this assumes you didn't add any other purchases to your account or miss a payment.

Both Zip Pay and Zip Money will charge you a $15 dishonour fee if a payment doesn't go through, and this may be on top of a dishonour fee from your bank

Minimum repayments with Zip Money are scaled to the amount owing, starting at $40, and are either the amount stated on your contract or 3% of your balance owing (whichever is greater).

Here's a comparison between using Zip Money vs a low-rate credit card for a $1000 debt:

  • If you owed $1000 with Zip Money and were being charged 19.9% interest and the $6 monthly fee, it would take you 3.5 years to pay off at $40 a month and cost you an extra $627 in fees and interest.
  • If you used a low-interest credit card, for example Westpac's low-rate card which has an interest rate of 13.74% and a $59 annual fee, and repaid $40 a month, it would take you 2.5 years to pay off and cost $346 in fees and interest – $281 cheaper than using Zip Money.

3. Possible bank and other fees

There's also the chance you could be hit with fees from your bank. Zip Pay's repayments are set to direct debit by default, so make sure there's enough money in your account to stop it from being overdrawn and, in most cases, leaving you to pay back fees. 

Both Zip Pay and Zip Money will charge you a $15 dishonour fee if a payment or direct debit doesn't go through, and this may be on top of a dishonour fee from your bank. 

And if you use a credit card to make your repayments to Zip Pay, you could also be slugged the interest rate on your credit card if you don't pay it off in time.

4. Zip Money operates as a credit card

What isn't clear from Zip's website is that Zip Money is actually operating like a credit card, not a BNPL. 

While a side-by-side comparison shows that Zip Money charges interest and has fees, it's lumped together with Zip Pay as being a BNPL, right down to being available in the same app. 

They even state on their website that it's "better than an interest-free credit card", which implies that products offered by Zip are not credit cards. 

We confirmed with ASIC that Zip Money is technically a credit card

While this is the case for Zip Pay, we confirmed with ASIC that Zip Money is technically a credit card, regulated by the National Credit Act and responsible lending laws.

Not only is Zip Money more expensive than many other credit cards out there, but the lack of transparency over what exactly Zip Money is and what people are signing up for is misleading and leaves consumers open to problematic debt and blemishes on their credit record.

woman confused by zippay terms and conditions

Not being able to read the Ts&Cs before you apply makes it harder to know what you're signing up for.

5. Sketchy Ts&Cs

We don't like that the terms and conditions are scattered through the online help and FAQs section of their website and that a copy of the full terms and conditions are only given to you once you have signed up to the service and they've issued you a contract. 

We called their customer service centre in August 2020 to ask for a copy but were told they couldn't be sent unless we'd been approved for the service. This lack of transparency around what people are signing up for until after the fact is a concern. 

Other financial products have publicly accessible product disclosure statements or detailed collated information available online. While not providing Ts&Cs before application isn't a breach of responsible lending laws, it does make it harder for people to know what they're signing up for. Zip Pay and Zip Money are lines of credit and we think they should both be held to the same standards as banks.

Should I use Zip?

Before applying for Zip it's a good idea to think about whether this form of credit is best suited to your needs and if you can afford to make repayments and cover any additional costs and fees. There might be more affordable options available.

It's important to remember that fees and interest amount to the same thing in the end – a cost for borrowing the money. If you don't stay on top of your repayments or if you over-commit, these platforms can get expensive, fast. 

Some also argue that the interest is built into the price of the product with these services whether you technically pay it or not.

If you sign up with Zip, be sure you budget to make all of your repayments on time, and avoid using your credit card as your Zip payment option

If you are inclined to sign up with Zip, be sure you budget to make all of your repayments on time, read your Ts&Cs carefully and avoid using your credit card as your Zip payment option. 

If you're using Zip Money you also need to pay careful attention to when your interest free periods end and aim to have your debt paid off before the high interest rate kicks in. 

To reduce your risk of financial overcommitment it's also a good idea to stick to only one BNPL platform.

BNPL regulation – draft voluntary code falls short

CHOICE has joined with other consumer groups to criticise the high cost of BNPL products, including Zip Pay and Zip Money. The costs are ultimately borne by all consumers through increased prices, as merchant payment fees are built into the overall price of goods, and through payment of late fees and other charges.

There are limited regulations for BNPL products, and consumer advocacy groups including CHOICE have been calling for tighter consumer protections, including a cap on costs in the same way that credit and debit costs are capped. 

We want to see products like Zip meet the consumer protections under the credit law

In response to criticisms the sector is bringing in a voluntary code, but due to the impact of COVID-19 this has been pushed back from mid-2020 to early 2021.

We've also reviewed the draft version of the code and we think it falls short. It won't deal with the high costs, inadequate hardship policies, or overselling of credit to people who are already under financial pressure.

We think that BNPL products act just like credit, but they're exploiting a loophole in the law that means they don't need to comply with basic consumer protections. We want to see products like Zip meet the consumer protections under the credit law.

History of Zip

Zip Co (formerly zipMoney) was founded in Sydney in 2013 and now operates in Australia, New Zealand, the UK and South Africa. In June 2020, the company also acquired QuadPay to expand into the US market.

By the end of the June 2020 financial quarter, 2.1 million Zip Pay shoppers made 2.9 million transactions on purchases valued at over $570 million across Australia and New Zealand, with an annual transaction volume of $2.1 billion.

The rising popularity of BNPL services is in part due to technology making electronic payments easier, as well as an increase in the number of people shopping online, distrust of banks and younger people moving away from credit card use. However, BNPL products can normalise debt and be risky for the financially vulnerable.

We care about accuracy. See something that's not quite right in this article? Let us know or read more about fact-checking at CHOICE