How Zip Co is rewriting its playbook for the BNPL 2.0 era

Once seen as a convenience for splurging on big-ticket items, Buy Now, Pay Later (BNPL) is now becoming a go-to solution for necessities like groceries and utilities, according to recent research​.

Speaking at Tearsheet’s The Power of Payments Conference in New York City, Rory Herriman, Chief Product Officer and CTO of Zip Co, shared insights into the evolution of the BNPL model. Zip Co provides point-of-sale financing and digital payment solutions to industries including retail, home improvement, healthcare, automotive, and travel.

“Before joining Zip [almost a year ago], I viewed BNPL primarily as a tool for impulsive purchases, mostly in consumer electronics and fashion,” says Herriman. “However, it is a common misconception within the payments and lending industries.”

Herriman observes that BNPL has matured into a widely accepted payment method, serving a broader spectrum of consumer requirements and assisting with cash flow management. He refers to this new phase as BNPL 2.0 or short-term installment consumer lending 2.0.

Herriman notes that Zip is pursuing a dual approach, drawing on both internal initiatives and external solutions to keep pace with the changing dynamics of the BNPL sector.

Zip Co’s internal three-pronged approach

Zip has integrated its product, engineering, and data teams into a unified strategy for developing next-generation solutions.

“These are the three legs of the stool,” Herriman says.

He notes that while some competitors share similar approaches, Zip’s focus is on addressing the needs of consumers who are employed but struggle with the disjointed timing of their incomes and expenses. 

“They [consumers] are just smoothing the variability within their overall cash flow space – that’s increasingly where we’re seeing these products go,” Herriman says. 

This signals a rising trend in utilizing the BNPL product to manage short-term cash flow gaps, a shift Herriman identifies as “where the industry is starting to reshape itself”.

Zip Co’s external channels of operation

Zip uses three main channels of operation to deliver its services:

1. Payments provider to merchants: When shopping online, consumers might encounter Zip as a payment option during checkout. In this role, Zip functions like any other payment processor, handling authorization, capture, and settlement of transactions.

2. Direct-to-consumer shopping app: Zip also offers a direct shopping experience through its app, where users can shop with merchants in Zip’s network or generate a virtual card to use at any store. The app allows users flexibility in how they shop, both online and in physical stores. Balancing the dual role of a shopping and financial app is a challenge that Zip strives to manage, to provide a smooth user experience.

3. Platform integration: Zip integrates with major platforms like Google Pay, e-commerce platforms such as Shopify and Wix, and mainstream browsers like Google Chrome and Microsoft Edge. This allows users to access Zip’s payment options when browsing products online during the checkout process.

“That’s just the beginning of where we envision being present. The key for us is that if we are going to fill this need of being the answer for your financial need, we have to be present where that need exists,” says Herriman.

These cohesive interactions across different consumer touchpoints create a flywheel effect. Consumers might start their journey by shopping at a merchant, then use Zip’s app for a more direct-to-consumer experience, and later return to merchants, continuing the cycle. 

“The goal for Zip is to provide connected experiences across platforms, whether at an integrated merchant like Best Buy or within the app, reinforcing its presence in consumers’ everyday purchases,” notes Herriman. “The key challenge, however, is to ensure that these experiences feel consistent and effortless for the consumer, no matter where they interact with the brand.” 

Determining core focus areas

A key part of Zip’s strategy is expanding its presence in various places where consumers spend their money. This vision extends beyond just shopping experiences; it’s about understanding where customers are and how Zip can be there to meet their needs in those moments, shares Herriman.

“It’s a focus on accessibility and convenience, ensuring that users can smoothly use Zip wherever they choose to make purchases,” he notes.

While regulatory requirements like KYC (Know Your Customer) processes and TILA (Truth in Lending Act) disclosures remain essential, the firm aims to reimagine the BNPL process where it feels less like taking out a loan and more like a simple, integrated payment method — whether at the checkout counter for groceries or other essential purchases.

To achieve this, Zip has identified its three core areas of focus:

i) Consumer-first approach: The company prioritizes seeking customer input. By asking customers directly about their preferences and pain points, Zip can create solutions that align with their expectations, according to Herriman. This approach flips the traditional model, ensuring the end product feels relevant and intuitive, enhancing the user experience.

ii) User experience: Herriman notes that advancements in digital technology have improved underwriting processes across the industry. However, the challenge isn’t just technological but psychological as well. It involves evolving BNPL as a routine financial tool to bridge the gap between income and expenses. The key differentiator is creating an experience where these processes are invisible to the user on the front end.

“By focusing on simplicity and accessibility, Zip aims to bridge the gap between complex financial systems and the ease consumers expect in their day-to-day transactions,” explains Herriman.

iii) Engagement: Consumers who have a steady income but live paycheck to paycheck may struggle with traditional credit systems or creditworthiness ratings, leading to lower credit scores or no credit history at all. This creates a large underserved market — estimated at 5.6 million American households — where BNPL serves as a solution.

“I think it [creditworthiness] is a poorly used term, but individuals who may not be participating in the general credit machine still need to be served,” Herriman says. “As BNPL is not tied to traditional credit structures, it offers a pathway for consumers to meet immediate needs and cash flow without relying on long-term credit.”

He emphasizes that BNPL’s real value is, in fact, in helping consumers avoid falling into a pattern of credit dependence.

Additionally, the BNPL model also enables companies like Zip to offer novel products to their customers. If consumers successfully repay their installments, they become more engaged, creating opportunities for new offerings that can cater to their evolving financial needs. 

“That allows us to continue engaging in the conversation with them and introducing new ideas and constructs,” he notes.

The road forward

Looking ahead, Zip plans to deepen its value to customers by leveraging data, particularly through cash flow underwriting. This approach involves gaining permission to analyze consumers’ spending habits, which can help Zip tailor its products to meet their specific financial needs. By doing this, the firm hopes to evolve from a transactional service to a more integrated, data-driven financial solution that adapts to consumers’ changing circumstances.

Zip also views advanced AI as a crucial component for its growth, albeit in a specific way. Instead of pushing consumers to adapt to its products, Herriman says Zip aims to use AI to understand how consumers transact and then to design products that align with those behaviors. 

“This is a transformative approach in the fintech space, and Zip is taking a thoughtful, methodical approach to integrating AI into its products, ensuring that these changes bring lasting value to both the company and its customers,” shares Herriman. “The focus is on creating meaningful, consumer-centric innovations, rather than just automating processes.”