As I noted in an adjacent comment, there is a $4 flat fee, and it is reasonable to assume the lender has expenses to pay, such as payroll and profit seeking investors, so there must be a cost to using their financing.
Regardless of what the marketing says, nothing is ever “free”. Typically, these types of small time lending operations for retail purchases with no collateral depend on people without impulse control control and poor cash flow management buying things they should not and then collecting a slow drip of money from some portion of them who will not be able to pay it off for a long time.
Not that I think it should be illegal, but it is generally considered to be a bottom feeder business, one that the esteemed people who work at Microsoft might be above. But apparently, they are not, and hence it is on Hacker News as a controversy.
I was curious how it compared to a credit card, since if you wanted a 4 payment over 6 week plan you could simply use a credit card and make an immediate payment of 1/4th to your card, and then 3 more payments of that amount over the next 6 weeks.
A quick internet search says that the average US credit card currently has an interest rate of 16%.
Paying off your credit card on the aforementioned schedule at that interest rate, assuming a monthly billing cycle that starts right before your purchase, you'll pay under $4 in interest if the purchase was under $487. If the purchase is over that, Zip is cheaper.
If your purchase comes in the middle of a billing cycle, the breakeven is $811.
(Both of those are assuming that you have nothing else on that card, so that the billing cycle in which you pay off the 4th payment will end with a 0 balance, and so there will be no interest for that cycle).
(Also I'm assuming you aren't using a rewards card. I'm using a card with 5% cash back on online purchases, making it quite a bit harder for Zip to beat the card).
Interestingly, I just noticed a Zip Pay option here on a UK retailer's site, and in this case there doesn't appear to be any flat fee involved; the 4 payments add up to exactly the standard retail price of the product. I guess this probably varies depending on local credit-issuing regulations.
(Checking the T&Cs shows that they do have a steep fee for any missed/late payments, in addition to whatever cut they're taking from the merchant. But it looks like here, the few weeks of credit really would be "free" to the customer provided payments are made on time. Not that I'd consider using them; my cashflow isn't so constrained that I need the service -- and if it was, I'd be more concerned about the risk of being late with a payment and getting stung for extra fees.)
> it is reasonable to assume the lender has expenses to pay, such as payroll and profit seeking investors, so there must be a cost to using their financing.
>Regardless of what the marketing says, nothing is ever “free”
In a world of low-interest rates, plentiful venture capital, and penetration pricing, things are often better than free.
Sometimes, but I do not see how it is possible in this case. That type of thing is done temporarily to gain a monopoly via network effects and then establish pricing power. If you cannot achieve that, then it is giving away money.
As well as the $4 fee mentioned, Zip and co also charge the merchant - in my country, 30 cents per transaction and 4-6% commission. Late payment interest is probably just gravy.
With schemes like these, all customers ultimately end up paying for this regardless if you use the service or not as merchants will have to add the costs to their prices.
I’m unclear on Zip’s business model so appreciate I could be missing something here.