Fintech's obsession with buy-now, pay-later

The fintech model of buy-now, pay-later (BNPL) has grown 200% since the start of the coronavirus pandemic and is expected to rise fifteen-fold by 2025. It's no surprise, considering the economic uncertainty the pandemic triggered combined with the increased need to switch shopping habits online and self-soothe with retail therapy. Beyond that, younger consumers who have been weary of traditional banks, find these companies more aligned with their spending habits and comfort levels.

How It Works
Retailers and e-commerce brands receive immediate payment while shoppers pay in installments, resulting in an increase in total spend and a decrease in abandoned shopping carts. Consumers love that they only pay a portion today and get the product shipped right away. 

But how do these companies sustain themselves if they pay out retailers immediately while accepting zero-interest installment payments from the customers? Here they borrow a tip from traditional credit card companies and charge a cut of the total sale, around 6% versus bank cuts that average 3%. When consumers fail to make timely payments, late fees can rack up quickly and, without much regulation in the industry, lenders can avoid scrutiny that other creditors are under.

And it’s not only Pelotons and luxurious leisure-wear that consumers are purchasing with this model. Startups are popping up to help people pay for basic necessities, like medical expenses and rent which may say a lot more about the state of our society than the frivolity of our consumption. 

Here's a look at the BNPL companies changing the face of lending.

Private BNPL Companies

💕 Klarna - The Stockholm, Sweden-based company raised an astounding $639MM last week, led by SoftBank Vision Fund. The company is gaining about 1MM users per month and credits the financial crisis of 2008 as the reason is younger audience is skeptical of traditional banks.

⛱️ Uplift - Planning a post-pandemic vacation but don’t want to pay upfront? Uplift offers a BNPL model for travel. The company took on $68MM in debt funding from Atalaya Capital Management in January.

🛋️ Kafene - The company focuses on consumers with less than ideal credit scores needing to make big purchases for necessities. The “flexible ownership” offering means a customer who misses payments will return the item with no penalty to his or her credit. Kafene raised $14MM in a Series A this month.

👌 Zilch - the UK BNPL company raised an $80MM round B in April and now boasts a $500MM valuation.

This week’s SPAC and IPOs

💪 ATI Physical Therapy: Physical rehabilitation at home 

SPAC: FAII

Acquirer: Fortress Value Acquisition Corp. II

🕹️ PlayStudios: Video games

SPAC: ACAC

Acquirer: Acies Acquisition Corp.

💳  Angel Oak Mortgage: Investment management & financial advisory

IPO: AOMR

Expected Share Price: $20-21

Shares: 8.05MM

🔬 Lyell Immunopharma: Biotechnology to combat tumors

IPO: LYEL 

Expected Share Price: $16-18

Shares:$25MM