The Buy Now Pay Later (BNPL) sector is experiencing a massive expansion amidst the global pandemic that is moving retail online and causing consumers to be more deliberate with their funds. This trend is especially pronounced amongst Millennials and Generation Z, who have defined a new push towards smarter finances. Amidst this paradigm shift, the UK-based BNPL provider, Zilch, has singled itself out as one of the most exciting companies to watch in the space. Often billed as the next fintech unicorn, the company recently announced that it has raised $80 million in fresh funding and has been valued at $500 million. Read on for a look at the announcement and how the brand is changing the BNPL space.
Zilch Secures Funding
The announcement of fresh funding for Zilch has those in the financial space yearning for details. Though the company has not disclosed the names of many of the investors involved in the deal as of yet, it is clear that at least one of the parties involved is a large US institutional investor. This news not only helps underscore the waves the company is making in the UK, but also the interest it is generating elsewhere in the world. On its current upward trajectory, many industry insiders have already begun eying how the company might utilize its momentum in the UK to position itself as a leading BNPL in the US as well.
The announcement also underscores how the company's funding approach has shifted as it continues to firm up its business model and gain new users. In an earlier Series B round of funding that came at the end of 2020, the company raised $30 million in a deal that was headed by Moneysupermarket.com cofounder Simon Nixon and Gauss Ventures. This new deal, however, took into account the increased interest the company has earned in the elapsed time and the positive reception it has received in the market to date.
"We came to the market in a dramatically different position to our last funding round," Zilch CEO Philip Belamant told reporters. "We've been exceeding all of our projected numbers as a business so we operated a book-build approach to fundraising."
The company has indicated that the fresh funds will go toward hiring new staff - an additional 100 employees that will be added to its existing team of 85 staff members.
Though the company was already earning positive comparisons to BNPL standouts such as Klarna and Amex prior to the new deal, the recent development indicates the company is poised to continue its ascent in the space. One of the major contributing factors to the firm's standing has been developments with the Financial Conduct Authority (FCA), the regulatory body that oversees close to 60,000 financial markets and service firms in the UK. The FCA recently announced that it would begin to implement increased regulation of the BNPL sector, throwing a shadow on the prospects of many companies in the space.
Zilch, however, emerged as one of the only BNPL providers that was already in compliance with the FCA's new regulations. This is largely due to the fact that the company had developed its operations in conjunction with the FCA's regulatory sandbox, a program allowing companies to test out innovative financial products with real customers under the guidance of the regulatory agency. As such, the fintech company has already built its business model to be compliant with the coming FCA regulations. This point has been especially impactful amongst investors concerned about the potential impact of the FCA's recent announcement.
Zilch Business Model
Of course, it's not just investors that have taken a liking to the fintech company, users have flocked to its service as well. Built on a straightforward model that allows users to pay 25% upfront for online purchases and the remaining balance over the course of 6 weeks, the company is empowering users to allocate their finances in a smarter fashion.
The company's over-the-top model is also a major plus for consumers tired of being constrained to the use of partner networks for BNPL services. In contrast to other BNPL providers, which require users to shop exclusively at vendors with which they have a partnership agreement, Zilch's services fit on top of a user's existing buying patterns - the company's services are usable at any online vendor that already accepts Mastercard as a form of payment. The company simply provides users with a virtual card, informs them of how much they have available to spend at the vendor of their choice, and then allows them to conduct their shopping as normal. Users input their virtual card as the payment method when checking out and can then avail themselves of the 25% upfront BNPL service.
Credit Score Impact
The fintech brand has also earned praise from users who are wary about the potential impact on credit score that may come with some competitors in the BNPL space. The company uses only soft background credit checks, which do not have an impact on the credit score of the person who is being checked. This stands in contrast to hard background credit checks, used in some instances by others in the space, which have the potential to negatively affect credit score in certain instances.
Once users start using the company's service itself, their credit score is similarly protected. Zilch does not negatively affect users' credit scores, even if they fall behind on payments. In the future, the company has plans to potentially allow users to opt-in to credit reporting if they'd like. This may be a draw for users seeking to receive a credit score increase in light of on-time payments.
As information emerges about the fresh $80 million in funding secured by Zilch, buzz has picked up around the BNPL company. With investors already eyeing it as a fintech unicorn, the company has now firmly established itself in an increasingly competitive sector of the market. Its business approach has included a proactive strategy for complying with FCA regulations and a host of user-friendly practices that hold particular appeal for Millennials and Generation Z. With this latest funding announcement, actors both inside and outside the BNPL space have been put on notice that Zilch is positioned to further increase its impact in the near future.