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Transforming the payments landscape – Our investment in Zepto

Published on
March 29, 2022
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Rusty Pipes

$14.3 trillion Australian dollars fly back and forth every year through the rusty set of pipes that is Australia’s financial infrastructure. That’s roughly 5x the nation’s GDP.

Most of that is via the Bulk Electronic Clearing System (BECS), which operates, much like your local bank branch, from Monday to Friday. Transfers made via BECS are batched together and sent a few times a day and it can take anywhere from 1-3 days for the money to reach its destination. Sometimes even 4 if you’re unlucky and make a payment over a long weekend.

Against this backdrop, regulators and banks have been remarkably forward-looking in establishing the New Payments Platform (NPP) in 2018, which enables real time account-to-account (”RTA2A”) payments, as well as unlocking other cool things like richer transaction data and the ability for merchants to send pull requests direct to customers bank accounts (PayTo).

Since launching, payment volumes through the NPP have grown at 160% per year and now account for 20% of BECS payments by volume. Uptake of the NPP in Australia has been faster than any other modern fast-payments network globally.

To date, the rusty pipes (BECS) have limited the realm of payment use cases to those that don’t require real-time settlement, like paying your rent or your gas bill. So the question is, if the NPP allows you to send and receive funds in real-time, directly from your bank account, what else is possible?

Take eCommerce for example. You can’t buy something on Amazon via a direct debit transfer from your bank account because it would take three days for the payment to settle. By that time, you would have found the thing cheaper elsewhere or come to your senses and realise you didn’t need the thing in the first place.

The best solution we’ve come up with is debit and credit cards. But cards were never designed for use online. Cards are a relic from offline payments where you needed a physical means to verify your identity and authorise a payment.

When we shifted to buying things online, the banking payment systems were still not ready to do real-time ID verification and payment authentication, so we had to default to using debit/credit cards over online forms. This was really only a workaround, and cards are still a poor online experience for consumers and merchants, not to mention an expensive one.

So what if you could pay in real time, directly from your bank account? We need look no further than Europe to see an interesting vision for the future of payments:

  • 🇪🇺 17% of all eCommerce transactions were made via bank-to-bank payments in the EU in 2020
  • 🇳🇱 65% of eCommerce transactions in the Netherlands are processed via the iDeal platform (NPP equivalent), growing 30% YoY 
  • 🇸🇪 RTA2A payments are set to be the dominant eCommerce payment method in Sweden by 2023 via the bank-owned Swish network (NPP equivalent), currently comprising 32%. Two-thirds of Swedes use Swish, both online and in-store

It makes sense if you’re a merchant because RTA2A payments are: faster, cheaper than alternatives like cards, and are subject to less issues like fraud and chargebacks. If you’re a merchant, why pay ~2% in acquiring fees and wait days for your money if you could get settled in real-time for less?

That’s just the beginning. The $33bn Australian eCommerce industry is a drop in the bucket of the multi-trillion dollar world of payments. What if companies could pay gig workers at the end of their shift? How would GDP be impacted if every business and salaried worker in the country didn’t have to wait days to get paid? We think RTA2A payments will provide some interesting answers to these questions over the coming decade.

Enter Team Zepto

A zeptosecond is the shortest unit of time ever recorded or, if it's simpler, a trillionth of a billionth of a second (10-21). Useful if you’re trying to think about the amount of time it takes for light to travel across a single hydrogen molecule (247 zeptoseconds, to be exact).

The team at Zepto chose this name because it aligns with their mission to provide the world with the fastest and most reliable RTA2A payment technology. And in their short history, they’ve been making waves. From a bootstrapped Byron Bay startup with the ocean for a boardroom, to a market leader in payments moving billions of dollars every month for some of the biggest companies.

They’re the first Aussie fintech to be both directly connected to the NPP and to have an open-banking accreditation, giving them a seat at the NPP table. If you’ve used a big fintech, taken a taxi, or touched CeFi in the last year, chances are it was Zepto’s tech working 24/7/365 to make sure your hard-earned dollars get to where they need to be, at lightning speed.

Like many great companies, Zepto was built to scratch their own itch. The founders – Trev, Ian, Matt, and Adrian - experienced first hand how rusty pipes can create all manner of working capital challenges and constrain growth. After a long time spent trying to navigate the spaghetti mess of fragmented payment offerings they decided they could do a better job. And they’ve built a world class team around them with the right experience in payments, banking, and fintech, who’ve already taken the business to the next level including CEO Chris Jewell, COO Matt Zaina, and CCO Carolyn Breeze.

Over the last decade, Australia has developed a reputation for punching above our weight in fintech and we believe Zepto will be no exception to this trend. We couldn’t be more thrilled to join Zepto on this journey alongside co-investors Decade Partners.

AirTree Ventures Pty Ltd holds AFSL No. 456766 and AirTree Ventures Custody Pty Ltd holds AFSL No. 544106.