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Buy Now, Pay Later

Buy Now, Pay Later

Seed-Stage Spotlight: 10 Buy Now, Pay Later (BNPL) Startups Helping Spread Out Costs Over Time

You’ve probably found yourself in the following situation: There’s something that you want, or need, to buy right now but it costs more than you can afford to pay entirely upfront. It would be easier and more affordable to pay for that item or essential service in regular installments over time. That’s the basic idea behind purchase financing, which these days is more popularly referred to as “Buy Now, Pay Later” or simply BNPL. Unlike a credit card, which typically has to be paid within 30 days in order to avoid interest fees, many BNPL services give shoppers the option to pay over two, three, or even twelve months, often without interest or additional fees.
BNPL is a new phrase for an old idea, which means the model is probably here to stay. And there’s room for the market to grow.
As relayed by Yahoo! Finance in December 2020, Bank of America projected that the market for Buy Now, Pay Later services will “grow 10-15x by 2025 to eventually process [USD 650 billion to USD 1 trillion] in transactions [worldwide].” That certainly bodes well for companies like Klarna, Affirm, and Afterpay, which have already achieved significant scale. But it also implies that there is room for many new entrants to the market to emerge. For now, the spotlight is on these seed-stage startups, but there’s more room at the table. 

Seed-stage startups seek riches in niches

Speaking of entrepreneurs in the BNPL sector, SPEEDA Edge has compiled a list of ten companies in the sector that have recently raised Seed rounds. In the table below, companies are sorted by the date of their last known fundraising event.
These companies fall into a few different categories. With large corporate incumbents like credit card companies and banks, as well as more established startups like Klarna and Affirm, serving markets around the world, new upstarts seem to find opportunities by offering BNPL services to specific geographies or market niches.

Location specific

One method of new venture creation is to identify a business model that has worked in one geographic area and attempt to replicate that success somewhere else. Three companies in our list are focusing on specific geographies:
  • Scalapay, founded in Milan but now based in Dublin, raised an EUR 40 million seed round in January 2021 to launch and scale a BNPL business model that closely resembles that of San Francisco-based Affirm. Scalapay is focused on providing fee-free payments made in three monthly installments after purchase to over 1,000 European merchants in Italy, France, and Germany. In a partnership with banking marketplace Raisin Bank, Scalapay will soon be able to offer merchants in any European country the ability to offer a BNPL option to their customers.
  • Split, based in Malaysia and Singapore, is the first Buy Now, Pay Later service to be certified as compliant with Islamic financial law, which traditionally prohibits charging interest. Over 60% of Malaysia’s nearly 32 million people are Muslim, and Split gives this market (as well as its non-Muslim users) the ability to pay for online purchases in three monthly payments. Split makes money by charging merchants a success fee for each transaction processed and facilitated by Split. The company is backed by 500 Startups and Entrepreneur First.
  • Nelo, based in Mexico City, is aiming to take advantage of the coverage gap for BNPL services in Latin America, starting with Mexico. One of Nelo’s co-founders, Stephen Hebson, worked on ride-hailing giant Uber’s international growth team, scaling the company’s financial services offerings in Mexico, Brazil, China, and India. When the company announced its USD 3 million Seed round in April 2021, Nelo said its service was live with 45 merchants, serving 150,000 users at the time, which is a fairly rapid growth rate for a product that launched in January 2020.

Vertical specific

Whereas some of the companies on the list are specifically targeting a particular country or region, while trying to work across multiple business channels, other startups are focused on providing BNPL services to one specific industry vertical. 
  • Resolve and Tillit are both going after B2B purchases. Resolve, which spun out of publicly-traded BNPL giant Affirm in 2019, raised USD 60 million in seed funding (a deal comprised of an unspecified mix of equity and asset backing), announced in May 2021. Resolve asserts that its “digital 30-, 60-, or 90-day net terms and credit billing solution frees up B2B sellers and buyers to focus on growing their businesses.” Meanwhile, Oslo-based Tillit (which translates to “Trust” in Norwegian) raised EUR 2.5 million in seed funding led by Sequoia Capital to do something similar for the European market by offering credit to business purchasers at the point of sale.
  • Since the United States is one of the only developed countries which doesn’t offer all of its citizens access to healthcare services, the high cost of care is an opportunity that can only be found in America. New York City-based Walnut is applying the BNPL model to medical bills. Walnut pays the bill on the patient’s behalf, and then sets up a payment plan that the patient can afford. To grow into the opportunity presented by America’s uniquely expensive healthcare system, which can land even well-insured people with thousands of dollars in medical bills, the company raised USD 3.6 million in seed funding in April 2021. 
  • Based in Chicago, Neon Financial is a startup that aims to help people pay their household bills with less financial stress. The company extends a line of credit for its users to apply toward expenses like rent and utilities. sers then repay Neon Financial in four equal installments. Neon Financial also partnered with a company called BillFixers, to provide bill-negotiating services to Neon’s customers. Neon Financial is backed by 500 Startups.
  • BlueTape (formerly known as LinqPal) is in the business of helping general contractors spread out the cost of building materials while offering material suppliers instant payments. Similar to the B2B-focused BNPL service providers mentioned above, BlueTape offers credit for terms of 30, 60, and 90 days, but since BlueTape is focused on a single market, it is able to get preferential financing terms from materials suppliers who join the company’s merchant network.
  • Playter Pay is a UK-based BNPL solution specifically designed for businesses to finance their recruitment transactions. Playter Pay covers the cost of the recruitment agency within 24 hours while the business pays over 6 monthly installments at 0% interest. The platform also offers ancillary HR software for recruiters and businesses to post job ads. Playter Pay generates revenue through commission-based arrangement fees and subscription fees (GBP 250) charged from the recruitment agency which will represent a percentage of the invoiced amount. The company charges a processing fee from businesses to whom the installment financing is provided. In December 2020, the company raised GBP 1 million ( USD 1.4 million) in a mix of equity and debt funding from a consortium of undisclosed investors.

Specialized

There are startups focusing on specific geographies, and there are others focused on specific verticals. But there are also startups at the intersection of the two, and Mexico City-based Graviti is a decent example.
Millions of people in Mexico do not have access to bank accounts and other forms of traditional financing options for large household purchases, like home appliances. Graviti gives low-income, unbanked Mexicans a way to finance appliances like solar water heaters, washing machines, refrigerators, and stoves. “The true problem is the financial gap — they cannot afford to pay up front for these purchases, and because they are unbanked, have no access to loans. On the other side, big and small merchants can’t access this market,” Graviti founder Yusef Jacobs said when his company’s USD 2.5 million seed round was announced in May 2021. Jacobs estimates that his company could help “more than 100 million households.” 
Beyond this specific niche, there are likely other market opportunities for highly-focused BNPL services to help more people access goods and services to improve their lives.

Investing in the future of paying over time

Paying for things in installments is hardly a new concept. As far back as 1925, one out of every seven dollars spent on merchandise in the United States were for goods purchased via installment payment plans. 
Why, almost 100 years later, is “Buy Now, Pay Later” a seemingly new phrase? In short, it’s because the way we buy things and pay for things is changing, and with change even old concepts find new, more innovative forms. With more gross merchandise value being transacted through ecommerce and more payments being conducted electronically, entrepreneurs in the BNPL sector see an opportunity to build software-first services which facilitate a new generation of installment payment options available to customers, often right at the point of sale.
What is also changing, though, is who is making those purchases. Millennials and Generation Z buyers demand more Buy Now, Pay Later options than their older counterparts, due in part to financial constraints and an aversion to more traditional forms of debt. It’s also common for younger adults to enter into installment plans for smaller purchases. Whereas their parents or grandparents might have paid for a sofa on an installment plan, younger people are opting to buy clothing, cosmetics, and other small-ticket items now, and pay over time.
The future is here now, but consumers will be paying for a long time to come.

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