British start-up Zilch is riding the “buy now, pay later” wave to America.
The London-based company said Wednesday it has raised $110 million in a fresh round of funding which values it at $2 billion — four times the $500 million Zilch was worth in its last private investment round eight months ago.
The investment was led by Ventura Capital, a pre-IPO investor that has previously backed Alibaba and Spotify, and Gauss Ventures, an investor in London fintech firm Curve.
Zilch plans to use the fresh cash to launch into the United States. It has set up an office in Miami with about 10 employees working on its U.S. expansion.
Buy now, pay later, or BNPL, services have attracted swelling demand amid an acceleration of e-commerce during the coronavirus pandemic. Such products let shoppers split the cost of purchases over a period of months, often interest-free.
BNPL accounted for 2.1% of all global e-commerce transactions — about $97 billion — in 2020, according to Worldpay data.
Zilch is hoping its approach to BNPL will help it stand out from the crowd. Rivals like Klarna, Afterpay and Affirm include their checkout option on select retailers’ websites. Zilch, on the other hand, lets users pay at any merchant that accepts Mastercard.
Philip Belamant, Zilch’s CEO and founder, said the start-up chose that path because all BNPL companies “look exactly the same.”
“I’m not saying they’re bad businesses but they’re just copycats,” he said. “Our view was, you can’t come late to the party and just do something exactly the same way.”
“We’re actually using the incumbents’ entrenchedness against them. We’re going direct to consumers and saying you can buy now, pay later anywhere you like.”
The company is similar to rivals in how it makes money, however. Zilch takes a small cut from merchants on each transaction processed through its platform.
The idea is that retailers are willing to pay these fees as it increases their sales in the long run.
Belamant said his firm has experienced massive growth since securing a previous round of funding in March.
“The company is about eight times the size,” he said. “It’s been 30-35% underlying sales growth month-on-month for the entire year.”
Zilch says it now has 1.2 million customers and is onboarding 200,000 new users each month. The firm has over 210 employees — up from just 20 in March — and aims to hire another 100 workers in the next 12 months.
That growth could be tested in the coming years, however, as regulators take a closer look at the space. In the U.K., the government is introducing new legislation to bring BNPL under regulatory oversight.
“It should be regulated,” Belamant said. Zilch obtained a consumer credit license from the U.K.’s Financial Conduct Authority in 2019. It also offers a “pay now” option that lets users pay for items in full. Klarna recently launched a similar feature in the U.K.
“At the end of the day, BNPL is a debt instrument. And that’s why we went and got the consumer credit license,” Zilch’s founder said.
The start-up is also backed by Goldman Sachs and the venture capital arm of Daily Mail and General Trust, which owns the Daily Mail newspaper. It has raised a total of $340 million in both equity and debt financing to date.
That war chest of funds will be key to helping Zilch gain a foothold in the U.S. market, which is dominated by the likes of Affirm, Afterpay and Klarna.
“We do need to thank these other guys for spending millions on educating customers,” Belamant said. “Klarna tried six years ago to go to the U.S. and it didn’t work so well. And I think the timing was probably wrong.”
“A lot of investors or shareholders have asked us if we’re doing a product-market fit test for the U.S. And actually, the answer is Afterpay has been doing it for us.”
The BNPL market is already seeing signs of consolidation, too. American fintech giant Square earlier this year agreed to buy Afterpay for $29 billion, while PayPal is buying Japanese firm Paidy for $2.7 billion.
Zilch isn’t the only start-up benefiting from the surge in demand for BNPL. Elsewhere in Europe, German fintech firm Billie raised $100 million at a $640 million valuation while Italian company Scalapay bagged $155 million in a round valuing it at $700 million.