Joe Heck, CEO of Zip, a leading Buy Now, Pay Later (BNPL) company, joins me on the Tearsheet Podcast to discuss the evolution of alternative payment solutions in the US. Heck shares lessons from his 20 years of experience in consumer lending and fintech payment solutions and brings insights from his previous leadership roles at firms like Happy Money and TrueStage.
Heck’s background plays a role in his approach to financial services. Growing up in Flint, Michigan, he understands the challenges of paycheck-to-paycheck living. “There’s a consumer base largely ignored by traditional financial systems,” Heck explains. “FICO doesn’t serve them well, but they have a great ability to pay.”
Zip focuses on providing financial flexibility to these consumers. It offers structured repayment plans that don’t push them into revolving debt. According to Heck, “We win when the consumer wins. If they can’t pay us back, our model doesn’t work either.”
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BNPL’s growth, competition, and distribution partnerships
The BNPL industry is still in its early days in the US. Heck notes that BNPL accounts for only about 2% of total payments and 5% of e-commerce transactions in the US. These numbers are significantly higher in markets like Australia and Europe. “There’s a lot of upside left,” he says.
Zip working to grow both its customer base and engagement. “We’ve added over 400,000 new customers in the first half of our fiscal year and saw a 40% year-over-year increase in the US,” Heck shares. Engagement is also rising, with more frequent and higher transaction amounts.
With more entrants into the BNPL space, competition is increasing and Heck argues that Zip’s focus on the underserved consumer sets it apart. “Our customers often fall outside traditional FICO lending. We provide access and flexibility that other BNPL providers might not.”
To expand its reach, the firm is forming strategic partnerships with companies like Stripe and major retailers, including GameStop. “Our partnership with Stripe allows us to integrate seamlessly into thousands of merchants, making BNPL more accessible,” Heck explains.
He also shared how exclusive retail partnerships are becoming less common as merchants prioritize offering multiple payment options. “Optionality for the consumer is what matters. Retailers want to optimize checkout by giving customers payment methods that work for them,” Heck notes.
The Future of Buy Now, Pay Later & cash flow management
Looking ahead, Heck sees BNPL continuing to evolve with better cash flow management tools. Zip is working on “Pay in Z,” a more flexible model that adjusts repayment terms based on a consumer’s unique financial situation. “We’re striving for personalization at scale,” he says.
Moreover, Heck believes increased familiarity with BNPL will drive further adoption. “Younger generations are hesitant about traditional credit cards. They prefer straightforward payment options that don’t come with complex APR structures.”
The Big Ideas
- Financial inclusion for underserved consumers – “I think one of the underestimated or maybe misunderstood pieces is these folks really have great ability to pay but they’ve got some lumpiness in the way their income rolls in, and their expenses don’t have quite as much lumpiness. And I think where Zip steps in is we provide access when and where they need it.”
- Strategic partnerships drive accessibility – “Exclusivity has largely evaporated or eroded across the industry. In the early days, it felt like a little bit of a winner take all mindset, if you will. I think the retailers have started to really pick up on the best way for me to optimize my checkout is to have multiple BNPLs and multiple payment options.”
- How different BNPL providers are coming together – Other BNPLs don’t really fit our customer base, so having us sit next to some of the bigger BNPLs is really fine with us. I think we both have unique strengths, and I think that provides the best overall checkout lift to our merchant partners.”
- The role of cash flow management in BNPL’s future – We’ll do a lot better as we move into a pay and see structure which allows us to customize not only the payment structure, but better align with the lumpiness of the consumers paycheck. So I think, the biggest thing for us to do is to continue to better understand the cash flow down.
Read the transcript (TS Pro subscribers)
Joe’s Personal Background and Connection to Zip’s Mission
Yeah, no. Really good question. And I think, you know, probably best, I maybe talk a little bit about my, my own personal background. I think it bleeds into, like, why zip and what, what’s, I think, exciting about the company. You know, I grew up in a really blue collar kind of paycheck to paycheck background, Flint, Michigan, you know, it’s got some grittiness and some underdog mentality to it. And you know, that was really something that’s kind of been part of who I am for a really long time. So when the opportunity came up with Zip and just kind of seeing not only the market position, but probably more importantly, the consumer that we serve, it was really a wonderful match for kind of who I am and what I believe in and and I think there’s no shortage of really strong culture here that supports the mission to really help kind of this underestimated consumer base. So it’s been an exciting journey. I think I’m Gosh, eight months now. So feel like I can talk reasonably fluently at this point.
Zip’s Target Customer: The Underestimated Consumer Base
Yeah, if you think about kind of the average everyday American, you know, there, we estimate there’s over 100 million in this kind of underestimated population, where FICO and traditional financial system really doesn’t serve this customer base Well, and that’s a customer that we have continued to kind of help in this paycheck to paycheck World. I think one of the probably underestimated or maybe misunderstood pieces is these folks really have great ability to pay they’ve got some lumpiness in the way their income rolls in, and their expenses don’t have quite as much lumpiness. And I think where zip steps in is we provide access when and where they need it really helping them with kind of everyday needs, and it’s created a really unique relationship that that in a unique position for our brand in the market.
Growth Metrics and Market Opportunity in the US
Yeah, yeah, we’ve had great growth, lucky to be a part of a really wonderful global team as well. We grew in the US over 40% year over year, and that really was on a couple different fronts. One is we grew our customer base significantly, over 400,000 new customers in the first half of our fiscal year and but we also grew engagement with our existing customers. You think about kind of average transaction, but also frequency. We’re seeing a lot strong uptick in both categories for us, I think that engagement is really been a big part of it in building trust with our consumer base. But I think also, like this, probably underpins the larger macro story here in the US. US is early days in BNPL adoption rates, I think we’re at roughly 2% of payments and only 5% of E com. You contrast that with where Australia is at, which is feels like a little bit of the the home of BNPL, and where Europe is, you know, they’re at 15 to 20% respectively. And it just tells you there’s. There’s a lot of upside still left in the US, and it’s an area that we think we’re super well positioned for.
Product Development Strategy and Customer Engagement
So from a new product perspective, we we really try to build products and services that meet the customer where they’re at, wherever that is on their financial journey, and our ability to meet them for everyday expenses around our pay and for product continues to be the core. How will expand that? We we have a pay and eight capability that allows us to handle a little bit larger transaction sizes for our customer base. But really what we believe in at our core is meeting that customer with flexibility. And flexibility can show up in a lot of different ways. It can be really strong approval rates with customers that largely are left out by the traditional FICO system. But it also, I think, is going where the product is going for us, which is what we call pay and Z. Pay and Z will allow us to match the customer a little bit more specifically. I think of it as personalization at scale. If a customer wants to pay a certain dollar amount, we can flex the term to match that payment date. And there’s a lot of additional opportunity there. I think the the other way that we engage the customer is we continue to try to make zip accessible wherever it is that they’re at so our that that’s has to do with our Merchant growth strategy, our in store experience, and largely you can start to see where we’re headed with partnerships like GameStop, partnerships like stripe from a distribution standpoint. So I think we’re just scratching the surface on our growth story, but 40% year over year, feels really good.
Value Alignment: How Zip Differentiates from Traditional Financial Products
Yeah, yeah, I would say maybe, maybe take it a half a step back, and I’ll probably get on a soapbox a little bit. But when I look at like the traditional financial system, think of credit cards like the incentive alignment for the consumer is not strong. You know, the banks win when the customer loses, it’s in it’s a complex product. You know, most the average Americans don’t want to understand how an APR works and how revolving balances work. I look at where we’re at and, you know, we have bnpls, have a really strong incentive alignment with the consumer. And, you know, we win when the consumer wins, you know, and we lose when the consumer loses. If they can’t pay us back, we don’t. Our model doesn’t work either. So I think that incentive alignment is kind of core to why we’re seeing stronger and stronger product adoption. I think the other thing is, is the simplicity of the product is really built on trust with the consumer, and I think that simplicity has created an easier understanding of the product and the payment terms, and consumers, I think, are really picking up on that. And I think the combination of the two is like, basically, look, we’re not we’re not built in a way that a consumer can drive onto that like endless debt treadmill where they can’t get off.
You know, these are transactions that pay off over the course of six weeks, and if they pay us back, right, if they don’t, then their access to credit is dropped. But I think the the incentive alignment has in simplicity, has created this bond of trust that allows us to really differentiate specifically with this underestimated consumer. You know, I think that the average financial system, products in services try to flex into, eventually, kind of pushing these folks into an APR product where we’re just trying to help them in that paycheck to paycheck bridge the way that plays out for the consumer. I think I’ve talked quite a bit about but the way that plays out for the merchant is equally important. Most of these folks, like you think about a Black Friday deal, for example. If that happens to be in between the paycheck to paycheck, a lot of this consumer base misses the moment. We allow the retailer to catch that moment with these consumers, a percentage of our customer base would it would have had to abandon their cart in those situations and wait for their paycheck to come in. So I think like that incremental lift is something very unique to zip within our. Our merchant partnerships.
Distribution Channels and Strategic Partnerships
Yeah, yeah. Let me, let me break up the two questions, both are really, really important to how the markets moving around. One is like, I think exclusivity is largely evaporated or eroded across the industry. I think you look at kind of the early days, it felt like a little bit of a winner take all mindset, if you will. I think the retailers have started to really pick up on the best way for me to optimize my checkout is to have multiple bnpls, multiple payment options, meet the consumers with the payment option that best fits them. I think this is where zip really excels. You know, are the other payment options, other bnpls don’t really fit our customer base, so having us sit next to some of the bigger bnpls is really fine with us. I think we both have unique strengths, and I think that provides the best overall checkout lift to our our Merchant partners. So I would say from an exclusivity standpoint, it makes sense here and there, but for the most part, we believe, like optionality for the consumer is the best thing. I think that bleeds into this distribution conversation as well. I think, look, every company, I’m sure, every company you’ve interviewed, talks about their their resource constraints, and you know, everybody wants to drive integration. I think the way we look at some of these distribution partnerships is simplicity for our retail partners. Stripe has connectivity with 1000s upon 1000s of merchants, and really kind of taking a one to many approach with partners that like stripe from a B to B to B standpoint is really important for our scalability. I think you’ve seen some of our or the other bnpls Really push on those partnerships were in kind of our early days of optimizing those as well. And so when, again, kind of coming back to our growth story, I think we’ve done really, really well, but there’s a ton of room left with with the execution around our go to market.
Meeting Consumers Where They Are: Key Retail Focus Areas
Yeah, yeah, for zip in particular, going back to this underestimated consumer, really, it’s about meeting them where they’re at and where they’re at, usually, is like bridging day to day needs, and that can include things like groceries, Bill Pay, and I think the traditional way to think about, or the traditional way finances thought about, this is through a kind of a pretty high judgment point of view. Is like, oh my gosh, you’re using credit for groceries. Well, you look at what I don’t know. I use my Amex card for groceries. The 30 day float gives me a lot of optionality to figure out where and what I want to use cash on and vice versa. I think that’s what we’re seeing. A lot of the BNPL usage around as well, is that float is creating a lot of flexibility for this paycheck to paycheck consumer, to manage their money in the way they want and and I think really it’s the way they want. I wanted to emphasize the I think traditionally you think of even budgeting, it’s like, hey, strip out coffee from your your budget. Well, if budget, if coffee is where you really find you know, a respite in your life. Cutting out coffee is an unsustainable budgetary cut, and I think what we want to strive for is continuing to meet this consumer, wherever they’re at in their financial journey, provide access to easy, simple, flexible credit in a way that doesn’t get them trapped on a debt treadmill. And I think that simplicity kind of shows up in the way the product works.
The Evolution of BNPL Adoption in the United States
Yeah, it’s an interesting question. I don’t think any of us know exactly where. I think you look at our customer base, you know, largely in between. Call it, you know, 25 and 34 so we’re not talking, you know, the super young crowd, and we’re not talking about, you know, the older crowd either yet. But I think what we’re seeing is familiarity and understanding of the product really emerge over these last couple of years. So when I think about, you know, this group of of consumers, call it 100 plus million that are really frustrated with the financial system as it sits today, the judgment that it’s associated with it, you know, you make a mistake and FICO will haunt you for seven years, like you’re starting to see that show up, not only in our customer base, but in the younger crowd coming up into the system. There’s a fear of the like a credit card and how I can get potentially trapped. So when I think about this kind of broader trend of wanting to be out of debt, stay out of debt, BNPL offers a lot of the flexibility without without the complexity. And so I think we’ll continue to see an emergence, kind of, across the all segments as kind of the stigma has eroded around what BNPL is and how it’s used. And I think you can see that in a lot of the recent studies that have been released around just like how people are using BNPL, the payback behavior in particular, you know, the the average loan for us, you know, we get 98% plus payback. If you contrasted that with a similar like for like at a credit card, you’re, you’re only in the 90s. So that, that simplicity and trust that’s being built, I think, I think, is kind of the bridge from that, you know, pretty high delinquency rate to to where zip performs.
Regulatory Preparation and Compliance Approach
Yeah, well, you know, it’s, it’s, you know, there’s lots of patterns in the world, right? I think if you look at the way buy now, pay later, kind of grew up in Australia in particular, zip has always been at the forefront of kind of regulatory fit for purpose, for the consumer. We’ve always been consumer centric, which means, like, we want to take a mindset of anticipating what regulation could or should look like, and I think we’ve we’ve done that here in the US as well. I think always keeping the consumers best interests at heart allows you to really structure your product and your services in a highly compliant way. We here in the US use a bank partnership and have for quite some time, web banks a terrific partner for us, and I think that puts us on a pretty clean regulatory positioning.
Future Vision: Addressing Cash Flow Challenges for Consumers
Yeah, yeah, yeah. Look, I think the world of FinTech, and again, this will be a little soap boxy, but I think the world of FinTech largely has been taking offline products and putting them online like that was, that was early days. You know, it felt transformational, I think for a lot of us in those early days. But I think as we evolve, it’s now more trying to think through like, what those consumer experiences are really going to look like, what the merchants are going to need. And I think the the large part, for me is, I think we’re going to continue to just double down on our consumer base. It’s, it’s an underestimated population that I think is largely ignored and or judged pretty quickly from, like the FICO system.
So what I mean by that is, like, I always kind of tell the story of, you know, this paycheck to paycheck consumer largely lives in the moment. They’re probably better with where every dollar is going than any of us are. And I think trying to meet them and understand their cash flow needs and the lumpiness is really where zip I think, plays a role, and we’re doing that already with with our buy now, pay later, product. I think we’ll do a lot better as we move into a pay and see structure which allows us to customize not only the payment structure, but better aligned with the lumpiness of the consumers paycheck. So I think, I think the biggest thing for us to do is to continue to better understand the cash flow down. Dynamics of the consumer. I think that one makes our underwriting stronger, but I think it better positions us where the consumers aren’t paying late fees, they’re not paying pay or payment date change fees. They’re really just focused on us meeting them in the moment with the right product that puts them in the best chance to be successful and and to so to me, that cash flow data is is an area where I think we’ll continue to invest in in invest in our consumer.
Providing Visibility into Financial Lumpiness
Yeah, that’s a good, good clarification, yeah, so when you think about the lumpiness and living kind of in the moment, like you don’t really anticipate things, right? So like, think about getting a flat tire. You get a flat tire, your immediate decision is like, do I deploy cash on that flat tire to repair it, or do I because I got groceries this week, like, but I’m not thinking about the fact that I probably have a $200 heat bill in two months, or in two weeks. I probably have rent due in three weeks. And really trying to better match, like, the optimization of how I’m leveraging my cash, how I’m leveraging credit. Really, that’s where I think we can play a stronger role. Is like, meet the consumer in that moment of distress, potentially distress or opportunity both. Both are great and provide them with the option set to maximize the moment and and I think that’s really a different path of how traditional finances continue to work. I think, I think, you know, I grew up in traditional finance, you know, they it’s always a retrospect. I want to, I want to provide some of that foresight and allow people to optimize in in, you know, this is probably back to my, my earlier days, but we know via some academically rigorous studies that you can reduce stress in somebody’s life if you can help them really anticipate and manage those both expected and unexpected. So when I think of the future vision for ZIP, it’s really helping bring down kind of the stress anxiety and judgment that’s associated with traditional finance and, you know, provide the right access at the right moment.
Finding Balance: Professional Ambitions and Personal Goals
.I would say I shifted this year to starting to read a lot more. Just, I’ve got, I got two young kids, so, like, a lot of this is just like, how do you stay sane and find time for professional I think we’re where I look at my big, hairy, audacious goal is really around what I perceive as the opportunity for zip. I talked to the company about this all the time, like there’s a moment here where we’ve got an opportunity to really make an impact. And I think the biggest you look at this consumer base of call it, you know, 100 plus million. You know, we’ve served just over 4 million of that today. So for us to have really significant growth opportunity here in the US means mostly that we need to stay focused and we need to execute. And it’s not the sexiest of goals.
When I think about and I don’t want to, I don’t want to signal too strong to to any investors, but when I think about the potential of this company, I just haven’t seen too many opportunities where the macro is there, the business, the culture of the company, are all lined up in the right way and in really, it just depends on on focus and, and I think that’s, that’s where my head’s at, professionally, personally, you know, balancing that giant opportunity with being, you know, good dad and good husband are that that’s probably the hairy part of it.