Forget Klarna?Investors bet that new startups will “buy now and pay later”

According to a report from The Wall Street Journal, Klarna is in talks to raise funds with a significant discount on previous valuations. A spokesman for the company said he did not comment on “speculation.”

Jakub Porzycki | NurPhoto via Getty Images

Hype for the “buy now, pay later” trend FadingSome investors are betting that they have found the next big one.

Buy now, Klarna and AffirmAllowing shoppers to postpone payments at a later date or split purchases into interest-free installments makes consumers wary of spending due to rising living costs, and higher interest rates increase borrowing costs. It will be a big burden because it will be pushed up.They are also facing Intensifying competitionWith the tech giant Apple Enter the ring with your own BNPL offering.

But venture capitalists are betting that a new breed of startups from Europe will be a real winner in this area. Companies like Mondu, Hokodo and Billlie have collected large amounts of cash from investors with simple sales. Companies, not consumers, are more lucrative customers who tend to buy now and pay later.

“There is a big opportunity for B2B’buy now, pay later’. [business-to-business] Space “. Malte Huffman, co-CEO of Berlin-based startup Mondu, said.

Huffman, the company recently raised $ 43 million from investors, including Billionaire in Silicon Valley Peter thiel Valar Ventures predicts that the BNPL market for B2B trading in Europe and the US will reach $ 200 billion over the next few years.

Services like Klarna extend consumer confidence in their purchases. For example, new jeans and flashy speaker systems, B2B BNPL companies are looking to settle transactions between businesses. This includes other existing invoice factoring, such as working capital loans that cover the company’s daily operating costs and invoice factoring that sells all or part of the invoice for faster access to the cash that the company has to pay. It is different from the form of short-term finance.

New Generation BNPL Startup

Country Total Venture Capital Financing
Scalapay Italy $ 727.5 million
Billy Germany $ 146 million
Preighter England $ 58.4 million
Hokodo England $ 56.9 million
Mondu Germany $ 56.9 million
Trade Sweden $ 12.3M

sauce: Crunchbase

Patrick Norris, general partner of private equity firm Notion Capital, said the B2B BNPL market is “much larger” than the business-to-business (B2C) market. Notion recently led a $ 40 million investment in Hokodo, a UK-based B2BBNPL company.

“The average basket size for B2B is much larger than the average consumer basket,” Norris added, adding that this makes it easier for businesses to make money and scale.

“B2C” players will decline

The share of major consumer-centric BNPL players fell sharply in 2022 as concerns about a potential recession weighed heavily on the sector.

Sweden’s Klarna is in talks to raise funds with a significant discount on previous valuations. The Wall Street Journal — Decreased from $ 46 billion in 2021 to $ 15 billion. A Klarna spokeswoman said the company did not comment on “speculation.”

Stateside, listed FinTech Affirm While stock prices have plummeted by more than 75% since the beginning of the year, blockBuying Australian BNPL company Afterpay for $ 29 billion, down 57%. PayPalOffering its own installment loan function, has decreased by 60% year-on-year.

BNPL began with a coronavirus pandemic, providing a convenient way for shoppers to split payments into smaller chunks with a few clicks on the retail store’s checkout page. Companies are now riding this trend.

Philip Benton, a fintech analyst at market research firm OMDIA, said, “Given the worsening macroeconomic situation and the ongoing supply chain crisis, companies are still facing cash flow issues, so they have the flexibility to fund. The faster way to receive it is attractive. “

Mondu and Hodoko haven’t published their ratings, but two Italian B2B BNPL companies, Scalapay and Billlie, were last rated at $ 1 billion and $ 640 million, respectively.

BNPL services are also especially popular with small businesses. Feel a pinch From rising inflation. According to Mondu Chief Huffman, SMEs have long been “not well serviced” by large banks.

“Banks can’t really reduce the ticket size to be economical because the contribution margins they get from such loans don’t cover the associated costs,” he said.

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

Recession risk

BNPL products have been hit by some regulatory backlash. This is due to concerns that they may incur tight debt to people and lack of transparency regarding late payment charges and other charges.

In the UK Lead the person in charge On the regulatory front, government officials want to introduce stricter rules for this sector as early as 2023. Still, Norris said business-focused BNPL companies have less regulatory risk than companies like Klarna.

“B2C regulations provide consumers with the protection they need very much and help them shop wisely and avoid debt,” he said. “With B2B, the risk of companies spending too much on unnecessary items is negligible.”

However, one thing B2B players need to be aware of is the level of risk they take. With the potential recession, according to Norris, a major challenge for B2B BNPL startups is to maintain high growth while preparing for potential bankruptcy.

“B2B is generally high in value and low in quantity, which naturally increases risk appetite and makes affordable checking more important,” said Benton of Omdia.

Forget Klarna?Investors bet that new startups will “buy now and pay later”

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