Zip Shares Crash 29% After US Fraud Attack Drives Up Bad Debts and Rattles Buy Now, Pay Later Investors

Shares of Zip Co. plunged more than 29% on Friday, their biggest one-day drop on record, after the buy now, pay later company disclosed that a coordinated fraud attack in the United States had hit its growth and pushed up bad debts.

Zip shares fell 60.75 Australian cents, or 29.35%, to A$1.4625. At their lowest point, the shares sank 50.5% to A$1.025, a two-and-a-half-year low and the stock's worst intraday decline ever, before recovering some ground in afternoon trading.

Trading was extremely heavy, with more than 92 million shares changing hands. The drop cut Zip's market value to about A$1.8 billion. The shares are now down more than 63% over the past year.

A fraud attack in the US

In its first-quarter update, Zip disclosed what it described as an "external fraud event" in the United States, its largest market.

The company said the incident involved the coordinated creation of new accounts, which were then used to carry out transactions that were never repaid. The fraud temporarily reduced transaction volumes in July and August and added A$7.2 million to cash operating expenses, according to Investing.com. Other reports put the cost of the incident at A$10.1 million.

Zip said it had notified authorities and lodged an insurance claim.

The company did not say how many accounts were involved or whether it expects to recover any of the losses.

Bad debts rise

The fraud was reflected in Zip's credit performance. Net bad debts written off rose to A$49.5 million in the quarter, up from A$39.3 million in the previous three months. That was equal to 1.93% of total transaction volume, near the top of the company's target range of 1.5% to 2%.

Zip said it expects bad debts to decline in the second quarter but remain in the upper half of its target range.

For investors, the rise in bad debts raised concerns about the quality of Zip's loan book and the strength of its controls against fraud, issues that are central to the profitability of buy now, pay later lenders.

Business still growing

The fraud overshadowed solid growth in Zip's underlying business.

Total transaction volume rose 18% from a year earlier to A$4.6 billion for the three months ended Sept. 30. Total income increased 17% to A$376.1 million, and adjusted earnings before interest, taxes, depreciation and amortization rose nearly 20% to A$75.1 million.

Those results suggest demand for Zip's services remains strong, particularly in the United States, where the company has focused its expansion. But the market's reaction showed investors were more focused on the risks highlighted by the fraud than on the growth figures.

A difficult year

Friday's plunge adds to a tough year for Zip shareholders. The stock had already fallen sharply in 2026 before the latest update, amid concerns about competition, credit quality and the outlook for consumer spending.

Buy now, pay later companies allow shoppers to split purchases into installments, usually without interest. The model became popular during the COVID-19 pandemic, particularly among younger consumers, but has faced growing scrutiny from regulators in Australia and the United States over consumer protections and lending standards.

Rising interest rates have also increased funding costs for the sector, putting pressure on margins.

Broader market

Zip's slump came on a weak day for the Australian market. The S&P/ASX 200 index fell 0.15% to 8,780.1, as losses in mining and energy stocks outweighed gains in banks and consumer companies.

Technology stocks were also under pressure after a sharp sell-off on Wall Street overnight, where the Nasdaq Composite fell 2.9% as investors questioned the rising costs of artificial intelligence investment.

What's next

Investors will watch Zip's second-quarter update for evidence that bad debts are falling as the company expects and that the fraud incident has been contained.

The outcome of its insurance claim and any further details about the scale of the fraud will also be closely followed. Analysts are likely to scrutinize whether the company needs to invest more heavily in fraud prevention, which could raise costs.

For now, Friday's dramatic sell-off shows how sensitive investors remain to any sign of credit problems at buy now, pay later companies.