Zip’s Larry Diamond returning to Sydney, says US mission accomplished

Zip co-founder Larry Diamond will return to Australia in July after two years in the United States, where he has led the turnaround of the buy now, pay later player to put it on a more solid financial footing to attack large credit card balances held by US banks.

Mr Diamond, 42, will become US chairman of Zip, remain an executive director on the Zip board and continue to work with the executive team led by CEO Cynthia Scott.

Larry Diamond is returning to Australia from where he will chair Zip US. Louie Douvis

Joe Heck will become Zip’s new US chief executive from July; he was formerly CEO of US fintech Happy Money. Zip’s other co-founder Peter Gray remains CEO in Australia.

Before he moved to the US, Mr Diamond was famously warned in late 2021 by compatriot Morgan Stanley boss James Gorman that dark clouds were gathering over the global economy and, by implication, the buy now, pay later sector.

The investment banking titan told him interest rates would rise, asset prices would fall, funding costs would go up, and consumers would start feeling the pain. Zip shares, like other fintech stocks, were subsequently hammered as investors lost faith in their vision to take on the banks for consumer credit.

Mr Diamond said in an interview on Tuesday that Mr Gorman’s observations were prescient. “We saw a seismic shift, and a crazy correction in the stock market. But we have been pragmatic and realistic and focused on the markets with the nearest pathway to profitability.

“We took the tough medicine. We have been very efficient on the cost structure over the last couple of years.”

After Zip withdrew from 11 markets, reduced headcount and restructured its debt funding, the company is now profitable. In April, it reported group cash earnings of $20.1 million for the third quarter. BNPL transaction volumes over the three months to March were $2.4 billion, up 14.6 per cent on the third quarter of 2023, on a higher margin.

Its shares have doubled this calendar year – but are still 80 per cent down from the time Mr Gorman issued his warning.

“The opportunity for our product has never been better,” Mr Diamond said from New York, where he will stay until Mr Heck starts in July, and then return home with his family to Sydney.

“BNPL is starting to go mainstream for everyday Americans. The banks are getting scared.”

Zip is in competition with other US BNPL players including Cash App (which has integrated Afterpay and is owned by Block), Klarna, Affirm, PayPal and big tech players including Apple. But Mr Diamond said the market is big enough for all these players, and the real target is growing US credit card balances. US consumers have $US1.1 trillion of credit card debt, according to Federal Reserve Bank of New York.

Australian BNPL volumes healthy

In Australia, where the BNPL category was created by Zip and Afterpay in the mid-2010s, volumes remain healthy despite the lower profile since Afterpay was taken over by Block.

According to a report by Worldpay to be released later this week, BNPL transactions in Australia are at an all-time high and made up 15 per cent of all e-commerce transaction value in 2023. If BNPL maintains this share, it will account for $15 billion of annual Australian e-commerce transactions by 2027.

Like Afterpay, Zip is expanding beyond the simple “pay in four” construct. “Six weeks might be too quick to pay back a furniture purchase: you might need three months,” Mr Diamond said.

Zip also said on Tuesday that Kevin Moss would become an independent, non-executive director. He will be based in San Francisco and has almost 40 years of financial services experience, including 17 years at Wells Fargo where he was chief risk officer for the consumer lending group.