Forget Klarna? Investors are betting new startups will ‘buy now, pay later’


Klarna is in talks to raise funds at a steep discount to its last valuation, according to a Wall Street Journal report. A company spokesperson said it did not comment on “speculation”.

Jakub Porzycki | NurPhoto via Getty Images

As the hype around the “buy now, pay later” trend dies down, some investors are betting they’ve found the next big thing.

Buy now, pay later Companies like Klarna and Affirm, which allow shoppers to defer payments to a later date or split purchases into interest-free installments, are under immense pressure as consumers become more wary spending due to the rising cost of living, and as higher interest rates drive up borrowing costs. They also face increased competition, with tech giant Apple entering the ring with its own BNPL offering.

But venture capitalists are betting a new breed of European startups will be the real winners in the space. Companies like Mondu, Hokodo, and Billie have reaped heaps of money from investors with a simple pitch: Businesses — not consumers — are a more lucrative clientele for the “buy now, pay later” trend.

“There’s a big opportunity out there when it comes to ‘buy now, pay later’ for B2B [business-to-business] space,” said Malte Huffman, co-CEO of Mondu, a Berlin-based startup.

Huffman, whose company recently raised $43 million from investors including Silicon Valley billionaire Peter Thiel’s Valar Ventures, predicts BNPL’s market in B2B transactions in Europe and the United States will reach $200 billion. dollars over the next few years.

While services like Klarna extend credit for consumer purchases — say, a new pair of jeans or a flashy speaker system — BNPL B2B companies aim to settle business-to-business transactions. This is different from some other existing forms of short-term financing like working capital loans, which cover the day-to-day operational costs of businesses, and invoice factoring, where a business sells all or part of an invoice to his client for faster access to money. they are due.

A new generation of BNPL start-ups

Scalapay Italy $727.5 million
billy Germany $146 million
Player UK $58.4M
Hokodo UK $56.9M
My due Germany $56.9M
Treyd Sweden $12.3M

Source: Crunchbase

Patrick Norris, general partner at private equity firm Notion Capital, said BNPL’s B2B market was “much bigger” than business-to-consumer, or B2C. Notion recently led a $40 million investment in Hokodo, a UK-based B2B BNPL company

“The average basket size in B2B is much larger than the average consumer basket,” Norris said, adding that this makes it easier for companies to generate revenue and achieve scale.

B2C players falter

Shares of major consumer-focused players BNPL have fallen sharply in 2022 as worries about a possible recession weigh on the sector.

Sweden’s Klarna is in talks to raise funds at a price well below its last valuation, according to a report from the the wall street journal – down to $15 billion from $46 billion in 2021. A Klarna spokesperson said the company was not commenting on “speculation”.

In the United States, publicly traded fintech Affirm has seen its stock plunge more than 75% since the start of the year, while shares of Block, which bought Australian company BNPL Afterpay for $29 billion, dropped by 57%. PayPal, which offers its own installment loans feature, is down 60% year-to-date.

BNPL has taken off in the coronavirus pandemic, giving shoppers a convenient way to split payments into smaller chunks with just a few clicks on retailers’ checkout pages. Now companies are jumping on the trend.

“Companies are still facing cash flow challenges given worsening macro conditions and the current supply chain crisis, so any way to get cash faster on a flexible basis will be attractive” said Philip Benton, a fintech analyst at market research firm Omdia.

Mondu and Hodoko have not disclosed their valuations publicly, but Scalapay and Billie, two Italian BNPL B2B companies, were last valued at $1 billion and $640 million, respectively.

BNPL’s services are proving particularly popular with small and medium-sized businesses, which are also feeling the brunt of rising inflation. SMEs have long been “underserved” by big banks, according to the head of Mondu Huffman.

“Banks can’t really reduce the size of the ticket to make it economical because the contribution margin they would get with such a loan doesn’t cover the associated costs,” he said.

“At the same time, fintech companies have proven that a more data-driven approach and a more automated approach to credit can really make it work and expand the addressable market.”

Recession risk

BNPL products have been rejected by some regulators due to fears they will push people into debt they cannot afford, as well as a lack of transparency around late payment and other fees costs.

The UK has led the charge on the regulatory front, with government officials hoping to introduce tougher rules for the sector as early as 2023. Still, Norris said business-focused BNPL companies face less regulatory risk than firms like Klarna.

“B2C regulation will provide much-needed protection for consumers and help them buy smarter and stay out of debt,” he said. “In B2B, the risk of companies overspending on items they don’t need is negligible.”

One thing B2B players will need to be wary of, however, is the level of risk they are taking. With a possible recession on the horizon, a big challenge for B2B BNPL startups will be maintaining high growth while preparing for possible insolvencies, Norris said.

“B2B will generally be high value, low volume, so naturally the risk appetite will be higher and accessibility controls more important,” Omdia’s Benton said.


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