Australian buy now, pay later (BNPL) firm Zip is reportedly in talks to acquire rival US-based Sezzle.

The companies have confirmed that they are into initial merger talks.

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The companies, however, added that there is no certainty that a transaction would materialise.

Over the past year, Zip has been making deals to expand to compete with its rival companies that include Klarna, reported Reuters.

Sezzle comes with a market capitalisation of around $303.5m, and Zip of around $1.38bn.

Zip said: “The Zip Board remains committed to ensuring any transaction delivers value to shareholders and will always be disciplined in its assessment of potential opportunities.

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“It will only pursue transformational transactions that help accelerate the delivery of Zip’s broader strategic objectives such as enhanced scale in core markets, improved customer and merchant propositions and a faster path to profitability through significant synergy opportunities.”

Zip Co was set up by Larry Diamond and Peter Gray in 2013.

Founded by Charlie Youakim, Sezzle was listed on the Australian stock exchange in 2019.

BNPL businesses enable customers to get short-term interest-free loans. The sector has seen a high increase during pandemic.

The sector is witnessing consolidation. This month Jack Dorsey’s Block bought Afterpay for $39bn, while Latitude Financial has made a $330m acquisition offer for consumer finance group Humm, reported news.com.au.

In March last year, Zip branched into contactless payment with its Tap & Zip offering.