ZIP: "The Phoenix that has risen from the ashes of the BNPL sector.", page-58

The Survival of BNPL: Why Merchants Will Overwhelmingly Choose Not to Pass on Fees

The claim that a 6% BNPL fee will "end BNPL in Australia" lacks an understanding of basic economic dynamics. Let’s break it down.

Essential Goods and Services: Inelastic Demand

Essential goods and services—think water, electricity, food, or mandatory payments like ATO quarterly BAS—exhibit inelastic demand. People have no choice but to pay for these, regardless of price increases. These are, in essence, "the concerns of your grandparents," focused on survival and necessity.

For these, providers like the ATO will happily pass on a 6% fee, knowing full well it won’t affect demand. After all, who’s going to boycott paying taxes? Furthermore, the ATO and similar institutions are unlikely to even offer BNPL options because they don’t need to—they’re not in the business of enticing consumers with convenience.

Discretionary Goods: Elastic Demand

On the other hand, non-essential goods—luxury towels, new gadgets, or romantic trips to Adelaide—are discretionary and exhibit elastic demand. These are "the things the current generations mistake for important," and consumers will happily forego or substitute them for other merchant goods and services.

Merchants know this. A $120 set of bath towels slapped with a 6% BNPL fee becomes a tougher sell, especially when competitors offer all-inclusive pricing. Similarly, a $3,000 holiday to Adelaide becomes far less appealing when a $180 fee is tacked on, driving customers to reconsider entirely. For merchants selling non-essential goods, absorbing BNPL fees isn’t just smart—it’s necessary to remain competitive in hyper choice landscape.

The Merchant Perspective: Adapt or Alienate

Merchants rely on BNPL not just as a payment option but as a driver of higher sales volumes. Zip’s reports show that BNPL unlocks discretionary spending, with strong growth in travel and retail categories. Passing on fees risks alienating customers and reducing sales in precisely the markets merchants depend on. The success of "free shipping" on eBay proves the value of all-inclusive pricing—customers don’t like surprises at checkout.

Meanwhile, BNPL providers like Zip have shown resilience and adaptability. With controlled bad debts (1.6% of TTV) and continued growth in merchant partnerships, Zip is proof that BNPL isn’t a fragile model waiting to collapse—it’s a well-oiled machine evolving with the market.

3 Ways Zip Can Adapt

1. Educate Merchants on Absorption Strategies

   • Zip can provide data showing that absorbing fees leads to higher sales and customer loyalty, particularly for merchants in competitive, discretionary markets.

2. Tailor Fees for Merchant Categories

   • By offering lower fees for high-volume merchants or elastic goods, Zip can make BNPL a more attractive proposition and reduce the likelihood of fees being passed to customers.

3. Enhance Consumer and Merchant Benefits "Cash Back"

   • Zip can introduce loyalty programs for customers and offer merchants additional tools, like consumer insights and marketing support, to offset the perceived burden of fees.

The Future of BNPL: It’s About Merchant Decisions

The idea that a 6% fee will "end BNPL" misrepresents the real issue. For essential goods and services, providers like the ATO will pass on fees without hesitation—because they can. For discretionary goods, where ZIP has positioned itself however, the decision to pass on or absorb fees will determine success. Merchants who pass fees onto customers risk losing sales to competitors with more inclusive pricing. Those who absorb fees, bundle costs, and prioritize transparent pricing will thrive.

BNPL’s survival isn’t about the existence of fees but about merchants making the right strategic choices. Absorption, adaptation, and innovation will define its future. Far from a death knell, BNPL remains a cornerstone of modern consumer finance.

BNPL will remain hyper competitive in 2025, consolidation will happen.