Buy now, pay later continues to be an unstoppable force. This is despite a rising chorus of concerns about just how consumer-friendly BNPL really is. There is also some growing unease over just how many BNPL platforms can sustain themselves over time.
We’ll get to the growing unease in a bit.
First, let’s catch up on why this subset of the payments sector continues to expand with no apparent constraints.
Today we read that UK-based BNPL company Zilch has raised a fresh $110 million (after raising the same amount in July) to fuel its expansion into the U.S. In September, the company acquired the San Francisco-based debt funding platform NepFin. Zilch made the deal in part to grease the skids on its planned U.S. entry. For example, NepFin’s California finance lenders license is expected to help Zilch expedite regulatory approval to operate in the United States.
The latest raise catapults Zilch into unicorn status, with a $2 billion valuation. This is considerably higher than its $500 million valuation just eight months ago.
At $2 billion, Zilch remains well below the top tier of BNPL players like Klarna, Affirm, and Afterpay. These players are all valued in the tens of billions.
Zilch, founded in 2018 by Philip Belamant and launched in 2019, does have a key differentiator. The big BNPL players are tied to specific retailer partnerships. Consumers can use Zilch with any merchant that accepts Mastercard.
Going Vertical and B2B
In recent months we’ve seen more and more efforts to expand the use cases for BNPL into niche consumer categories and B2B. At this point, there is very little that you can’t buy via BNPL.
BNPL has been an option for travel purchases for some time now. And Australia’s payo has pioneered “eat now, pay later” as a thing. This service allows diners to upgrade to finer dining without swallowing the entire bill in one sitting.
And this week we read about BlueTape, a new company offering a BNPL option on building supplies.
Many of the leading consumer BNPL platforms are also investing in B2B solutions.
And Sweden’s Klarna has invested in a German company called Billie that offers a B2B BNPL model. Billie closed a $100 million Series C round in October.
There is no question that BNPL continues to gain traction. Investors pouring hundreds of millions into companies and valuations are skyrocketing.
But there is growing evidence that that BNPL is not the free lunch that its purveyors have been implying, or even stating outright.
We’ve written previously about a Credit Karma survey that signaled an alarmingly high default rate on BNPL accounts. And also that having BNPL obligations is a drag on consumer credit scores.
And this week we saw reports out of the U.K. that British BNPL debt obligations have topped GBP4 billion (about $5.4 billion). Consumer advocates point to this figure with alarm. And they expect obligations will swell further this holiday season.
“It’s very concerning to see such a huge amount of debt related to these schemes,” Gareth Shaw, head of money at the U.K. consumer organization Which? told Britain’s Independent newspaper. “This demonstrates why there should be no further delay to plans for BNPL regulation, which should include much greater marketing transparency, information about the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”
Some previous BNPL boosters are also expressing doubts. Professor Scott Galloway became a BNPL bull after interviewing Nick Molnar, the engaging founder of the Australian-American BNPL platform Afterpay back in late 2020.
On a recent episode, Galloway said he’s changed his tune on BNPL, calling it just another form of debt.
At the recent Localogy 2021 in Los Angeles, BNPL featured prominently in the “Future of Payments” panel. Mastercard’s Dave Galvan said BNPL’s growth has been a natural response to a need for alternative financing consumer methods, particularly by millennials and GenZs. But he also acknowledged that as debt swells and default rates rise, regulation might be inevitable.
“If that continues to happen, we are going to see regulators step in,” Dave said.