Westpac this week unveiled a strategic partnership with zipMoney (“Zip”), one of Australia’s leading providers of digitally-embedded finance, backed by a $40m equity investment.
The investment was led by Westpac’s business development team in close partnership with the Group’s consumer and business banking arms. It continues Westpac’s strategy to build a portfolio of new business interests through investments and partnerships with innovative fintech companies.
To provide some further insights on the Zip partnership, here’s a transcript of an email interview I did with Westpac Wire.
What is Zip and why is Westpac interested in this part of the consumer finance market?
Around the world we’re seeing a shift in the way millennials are accessing consumer finance. They’re no longer looking to credit cards to meet their payment needs, but are increasingly paying with digital wallets and digital instalment plans. The whole process is pretty quick and seamless. No visits to a branch. No lengthy application forms. Finance is embedded right in the shopping experience.
Zip, which is listed on the ASX, is one of Australia’s leading providers of digital finance. It has more than 650,000 customers and is growing rapidly. Zip also owns Pocketbook, a personal financial management tool which provides customers with real-time categorization of spend, credit tracking and financial insights.
Zip’s long-term strategy is to bring together the two parts of their business – payments and financial management – into a single platform focused on customer convenience and customer advocacy. So when Zip talks about “interest freedom” for its customers – it’s a message that resonates. It’s a powerful story.
Is this more of an investment or a strategic partnership?
Well, it’s both. Westpac isn’t running a private equity shop. We’re not focused on financial engineering. We’re focused on partnering to add strategic value for both Westpac and our portfolio companies. If we can do this well, financial returns will take care of themselves.
With Zip, we’re partnering for a range of reasons. We’re looking to offer Westpac customers more choice in the changing payments landscape. We want to co-create new products and services. And of course it’s a way for Westpac to reach the next generation of customers and keep pace with new technology and changing consumer behaviour.
For Zip the benefit is many-fold. For instance, we’ll look to integrate Zip into our merchant payment terminals and give Zip instant scale in-store.
As part of the deal Westpac was given performance options in Zip. Why was the deal structured in this way?
We like deals where our incentives are aligned with management and our contributions to a company’s growth are rewarded. Zip was happy to grant us performance options tied to future revenue hurdles. We’ll now do our best to meet these revenue hurdles and, if we do, everyone will win.
What can 200 year old Westpac learn from a 4 year old company like Zip?
Westpac is great at many things, but it can’t be great at all things. That’s not a criticism: it’s true of all people and all organisations.
Westpac is great at managing a balance sheet of three quarters of a trillion dollars. That’s a big number and a big responsibility. Australians trust Westpac to keep their money secure and provide financial services to help people through their lives.
But it’s hard for an organisation with that kind of responsibility to also be disruptive. It’s hard to build quickly, take risks and experiment. That’s just a fact.
By investing and partnering with innovators like Zip, we can learn a lot. We’ve been impressed with Zip’s proprietary data analytics platform, for instance. We’re also impressed with Zip’s vision and willingness to refashion our industry. It’s exciting.
Similarly Westpac can add a lot of value to Zip: distribution, obviously, but also the experience of how to run an organisation at scale.
This is one of the biggest investments a bank has made in a fintech company in Australia. Why did Westpac invest directly rather than through Westpac’s venture capital fund, Reinventure?
Reinventure is typically focused on seed and early-stage investing, whereas Westpac invests directly in more mature opportunities where the partnership synergies are more self-evident. Westpac has recently invested directly into uno home loans, Assembly Payments and now Zip – and in each case we’ve taken an “invest-to-partner” philosophy.
But we obviously work closely with Reinventure. The fund’s managers Danny Gilligan, Simon Cant and Kara Frederick are terrific investors and strong supporters of Australian fintech. They have some outstanding companies in their portfolio – which will add significant value to Westpac one day.
You worked in venture capital and private equity in New York for more than a decade. How was it different doing a deal like the one with Zip at a bank?
Well, on the investing side, it’s different working at a bank. It’s not just a case of arriving at a standalone investment decision. Because of the strategic nature of Westpac’s investments, we need to build widespread support for an opportunity and buy-in from the business units. But the benefit of investing from Westpac is that you’re never a passive bystander. Westpac has some big levers it can pull to help its portfolio companies. That’s pretty cool.
Looking ahead, I guess for me the most exciting intellectual challenge is how do you speed-up this grand old institution? How do you get it to loosen the bow-tie and step onto the dance floor? We have plenty of ideas, but we’re taking them one at a time!