Point of Sale financing (PoS) in a form of Buy Now Pay Later (BNPL) is currently one of the hottest and most growing segments of Fintech world. The ongoing pandemic crisis has negatively impacted consumer’s disposable incomes and overall spending habits, putting pressure on retailer’s revenues.
A total number of merchants cooperating with BNPL startups was steadily increasing in 2020, with a common goal of mitigating drop in THEIR revenue.
Using BNPL option at the checkout, customers can purchase a product using borrowed money (credit) from BNPL firms which, they later repay in full or in instalments over a certain period of time (weekly, monthly). In many cases, these instalment payments come with no interest or fees. Customers apply and get approved on the spot, typically within minutes.
Popular purchases using BNPL option include clothing, electronics, and home furniture. Customers do not pay any fee for these services as BNPL startups usually charge merchants a small percentage fee of each purchase. In return, BNPL startups pay merchants whole amount immediately after purchase is made and then carry the risk of buyer’s repayments themselves. Despite these fees, merchants often benefit from increased revenue per customer, higher return rates of customers and decreased abandonment of shopping carts at checkout.
Merchant-dependant vs Customer-First
We differentiate BNPL startups into those who are dependent on partnerships with merchants and those who are merchant agnostic. Many startups which offer BNPL options can solely provide their services when the purchase is made at the merchant store that has implemented such BNPL option for their customers.
These merchant dependent startups function as a middle man between payments from customers to retailers and as they do not sell any retail products/items they need to collaborate with merchants who do. On the other hand, certain startups disrupting credit cards/loans market are able to function independently, offering innovative/improved credit and loan services to any customers. Obtained credit card, virtual one-off card or revolving credit line can then be used wherever customer pleases.
Why is BNPL gaining traction?
Among the main reasons for the increasing popularity of this kind of the point of sale financing is increased use of online shopping and e-commerce primarily caused by COVID-19. Combined with an improved CX and simple onboarding compared to traditional credit card application process, it’s no surprise younger customers have been leaning this direction. What’s more, very often, these young consumers (millennials and generation Z) find it complicated to apply for a traditional credit card or other forms of short term loan due to lack of credit history.
Not to mention, these forms of financing regularly come with high-interest rates making an overall purchase more expensive which created a sizable opportunity for BNPL startups to disrupt established credit card and consumer financing markets/businesses. BNPL services are designed to make the purchase more affordable by splitting the total cost of a product with no additional costs.
They use alternative data like purchase history of applicants to evaluate their creditworthiness. These credit checks are considerably soft and fast. Financing offers of BNPL firms typically come with transparent payment schedules, automated repayment with exact instalments and small to none interests on repayments. All of which diminishes the risk of the persistent debt trap.
BNPL in Europe: Outlook & Opportunities
It’s estimated that this market will grow to $347 billion in Europe until 2025, representing half of total BNPL spend globally and 30% of e-commerce spend in Europe in the same year. BNPL is rapidly gaining customers in European countries like UK and Sweden, however, there is a room for growth in other vastly populated countries like Germany and France, where BNPL firms have not picked up such popularity yet. BNPL is spreading to many European countries with immensely different income levels (Romania, Finland) and spending habits. Here are some BNPL startups with a promising future in Europe:
Money Raised: €4.4 mil.
Investors: Venture Friends
Tymit is a London based startup that aims to reinvent credit cards and their perception by the general population. With their mobile-enabled instalment credit card, they provide BNPL option wherever Visa is accepted. All you have to do is pay with Tymit credit card and select an instalment plan suitable to you. They focus on providing total control and transparency for customers by letting them choose and change the repayment plan with a clear explanation of costs and interests paid. Similar to BNPL counterparts, Tymit offers repayment over 3 months instalments with 0% interests and fees. Other services include virtual credit card, spending and balance tracking, smart payments notifications and purchase simulator.
Tymit is well-positioned to exploit the large amount of expensive and confusing credit balances serviced by incumbent banks with poor CX. They have recently partnered with Modulr to provide faster, in real-time payment services to their customers.
Money Raised: €500 thsd
Investors: Angel investors, Gorilla Capital, Practica Capital
This Estonian-based fintech startup takes full advantage of open banking by aggregating loan options at the point of sale. They increase the availability of credit for customers to finance their purchases at checkout with instalments over time. Customers can obtain multiple financing offers with a single credit application. Montonio performs a credit check upon acceptance by analyzing customers account information, purchasing behaviour and future cash flow estimations. The service is free for merchants. Revenue is generated from commission off loans originated through Montonio. Founded in 2018, the company has already partnered with local banks such as TF Bank and IPF Digital and plans to enter Scandinavian and CEE markets.
Revo Technologies (Plus) (Poland)
Money Raised: $27 mil.
Investors: Baring Vostok Capital Partners, Castel Capital
Revo is the point of sale financing that allows customers to pay for purchased products via instalments over time. Headquartered in Warsaw, Revo operates mainly in Russia and CEE region. Their omnichannel technology creates more flexibility for both merchants and customers to use Revo’s services both in-store and online, including the retailer’s mobile application. Before a purchase, customers can register using mobile phones. Revo promptly analyses their data and assign a credit available for the customer to use in a given store. In addition, they receive a simple and transparent schedule of payments which can be customized individually. Loans repaid in 3 monthly instalments come with 0% additional costs. Revo has already accumulated over 4.5 million customers in Russia and Poland and has recently expanded to Romania under a brand Mokka. Its sub-brand in Romania will be able to facilitate customer’s paperless application within 2 minutes boosting the level of innovation in less developed EU country with lower disposable incomes.
Money Raised: $40 mil.
Investors: Gauss Ventures
Founded in 2018, this British fintech startup is another rising star in PoS financing sphere. With their stunning mobile app and awesome CX, Zilch customer can choose one of many stores collaborating with Zilch. Customers then solely activate and checkout with Zilch virtual card and are free to enjoy purchased product with payments spread into four equal instalments over time (at checkout, 2nd week, 4th week, 6th week). The whole service is free of charge for the customer as Zilch charges merchants a certain commission for each purchase. Zilch managed to successfully raise $30 million in December 2020 as a part of their Series B funding round which will be used to scale up their market share.
“Zilch ensures customers never over-borrow. We make use of Open Banking and AI along with soft credit checks to determine each customer’s level of affordability. As a result, Zilch’s customers rarely default and make use of the product as a cash flow management tool, which has proven to be of huge value to our customers.” Philip Belamant, CEO and Founder of Zilch
Money Raised: €12.5 mil.
Investors: Financiere Saint James, Isai
This French startup creates an opportunity for merchants to offer buy now, pay later services for their customers. Similar to Klarna, merchants get paid instantly when customers make a purchase while the customer can split the cost into 3 or 4 instalments with no hidden costs. Alma in exchange charge commission to merchants and takes the risk of potential customer’ default. Prior to financing the purchase for customers, Alma performs credit check with a series of verifications, and algorithms implemented (i.e. applicant’s bank statements) and then filter out high-risk or fraudulent customers. Alma is currently in partnership with more than 1000 merchants, processing more than 10 million EUR per annum. The startup claims that merchants using Alma’s services, experience +16% in average revenue per customer and +20% customer retention.
Money Raised: $57.3 mil.
Investors: BlackFin Capital Partners, e.ventures
Another fintech startup with a promising outlook allowing customers to “purchase goods on tick”. Originated in Denmark, Viabill offers BNPL payment solution up to $300 (interest-free) for their customer to spend at more than 5500 stores. All you have to do is select Viabill at the checkout, fill out an application with some personal details (email, phone number, debit card) and pay first 25% right away while remaining 75% split into 3 equal monthly instalments. Merchants typically pay 2.9% of each transaction in exchange for an average increase in both revenue and conversion rate (32.7%, 18% respectively). ViaBill differs to others by virtually performing no relevant credit check on their customers. Nevertheless, Viabill managed to raise $10 million in their 2019 Series A funding round bringing the total amount of financing to little over $57 million since 2017.
Money Raised: €6.2 mil.
Investors: Volkswagen Group, Hevella Capital
This Vienna-based startup, operated by Credi2, enables customers in Germany and Austria to finance their purchases at the point of sale or take up a line of credit by linking merchants, lenders and customers in one place. Derived from words cash (representing money) and espresso (representing one serving) cashpresso offers personalized financing option to each customer where the customer decides on a date, amount and number of repayments (using credit calculator) with an option to amend it whenever necessary. Customers need to provide certain personal information and access to existing bank accounts for cashpresso to perform a credit check. Repayment of the products within 2 months, purchased at partner stores come with 0% interest. Deutsche Handelsbank is the official bank partner in loan intermediation.
Twisto (Czech Republic)
Money Raised: €34.5 mil.
Investors: Finch Capital, ING Ventures
One of the most eye-catching startups focusing on payments vertical in CEE. Twisto, established in 2013 in Prague, with its initial idea to collaborate with e-commerce merchants to provide payment solutions, has expanded to the BNPL sphere. Currently available in Czech Republic, Poland and soon expanding to Romania. Upon registration, you are assigned a certain amount of credit which, you can spend in-store or online. Twisto provides two kinds of BNPL services: 1. Customers can defer their upcoming repayments to following month or 2. Customers can split the cost of payments into monthly instalments (3–12) where “repayments in 3” come with no interest or fees.
References and Other Resources:
The future of credit: A European perspective (spring 2019, Deloitte)
Digital BNPL & ePOS financing: Market outlook 2020 (Kaleido)