BNPL Everywhere: The Rise of Buy Now, Pay Later

The Expanding World of Buy Now, Pay Later

Welcome to The TechCrunch Exchange, your weekly source for startup and market insights. This newsletter draws inspiration from the daily Exchange column, offering a free, weekend-focused read. Interested in receiving it directly? Sign up here.

Greetings – Anna is filling in for Alex, who is currently enjoying a break. The Exchange briefly paused, but industry news continued to develop, so let’s dive in!

BNPL Gains Momentum

The buy now, pay later (BNPL) sector has experienced significant growth, particularly since Square’s announcement last August to acquire Afterpay for $29 billion. This week saw a surge in BNPL-related news and developments. Let's examine these closely.

The acquisition of Japan’s Paidy by PayPal for $2.7 billion was a headline event. Equally significant was Amazon’s agreement with Max Levchin’s Affirm. What could be a stronger indication of BNPL’s mainstream acceptance than allowing Amazon customers in the U.S. to postpone payments on purchases of $50 or more?

Global Expansion and Funding

Growth isn’t limited to major e-commerce markets; BNPL startups worldwide are experiencing rapid expansion, as evidenced by recent funding rounds. For example, Scalapay, focused on Europe, secured $155 million at a $700 million valuation. Meanwhile, Colombia’s Addi announced a $75 million extension to its Series B, bringing its total funding to $140 million.

As Mary Ann Azevedo noted for TechCrunch, “Buy now, pay later is officially ubiquitous, and Latin America is no exception.” However, this isn’t a simple replication of existing models. Varied market demands necessitate adjustments. Notably, BNPL isn’t exclusively tied to online shopping.

Beyond E-commerce

Addi’s partnerships extend to physical retail locations. This is logical in markets where e-commerce adoption, while growing rapidly, hasn’t reached U.S. levels, and installment payments were already common. Furthermore, it represents a natural progression of BNPL beyond traditional retail.

Wisetack, a San Francisco-based startup, exemplifies this trend. It offers buy now, pay later options for in-person home services, such as HVAC repair and plumbing. The company strategically navigated this fragmented market by collaborating with vertical SaaS providers like Housecall Pro and Jobber to access their professional customer base. They recently raised $45 million in funding.

Larger Expenses and Regulatory Scrutiny

The expansion of BNPL beyond retail includes larger expenditures. Wisetack CEO Bobby Tzekin reports that service-based purchases average $4,000 to $5,000. This is promising for BNPL companies, but it will likely attract increased attention from regulators who are already reviewing this emerging sector.

Regulatory Concerns

Despite being marketed as interest-free and an alternative to credit cards, authorities and consumer advocacy groups have voiced concerns that BNPL may encourage excessive spending and downplay associated risks.

This has led to increased regulatory pressure in the U.K. and the EU, potentially impacting Klarna’s planned public listing, which is described as “plausible but not imminent.” With $3.7 billion in funding raised to date, according to Crunchbase, a public offering similar to Affirm’s would be a logical step for the Swedish company; however, timing will be crucial.

Looking Ahead

Given the substantial investment and ongoing consolidation within the sector, it will be fascinating to observe future developments.

Factorial, Wave and SPACs: A Weekly Roundup

Despite a pause in publication this week, significant developments unfolded across TechCrunch and Extra Crunch. Several stories particularly stood out for their implications and insights.

Factorial’s Focus on Small and Medium-Sized Businesses: The Spanish HR technology company, Factorial, successfully secured $80 million in a Series B funding round, resulting in a valuation of $530 million. This achievement is notable, especially considering Tiger Global led the investment. However, the real significance lies in the emphasis on the potential within the SMB market.

Allow me to briefly mention a related point I made in my analysis of Expensify’s EC-1 filing a few weeks prior.

As Ingrid Lunden of TechCrunch highlighted, “Factorial’s growth reflects a broader trend where enterprise technology is finally adapting to serve smaller organizations by tailoring tools originally designed for larger corporations.”

This adaptation generally involves streamlining product complexity, a task often better executed by companies solely dedicated to the SMB segment, rather than established enterprise providers. Furthermore, this isn’t a fleeting trend; it’s increasingly recognized as a sustainable area of focus for businesses.

Significant Funding for Wave: This week saw a landmark event in Africa’s tech landscape: mobile money startup Wave secured a $200 million Series A round, the largest of its kind on the continent. This funding propelled the U.S.- and Senegal-based company to become French-speaking Africa’s first unicorn, achieving a $1.7 billion valuation.

It’s unsurprising that a fintech company reached this milestone first, as Tage Kene-Okafor observed. Fintech ventures have consistently attracted the largest share of venture capital investment in Africa. According to The Big Deal, a Substack newsletter covering Africa’s startup ecosystem, fintech accounted for 48% of all venture capital invested in African startups during the first half of 2021 – a figure likely to increase with this substantial round.

More broadly, this development suggests that Africa’s technology sector is poised to achieve record-breaking investment levels in 2021, a welcome prospect following a challenging 2020 and a history of underfunding.

SPACs: A Shifting Landscape: Bloomberg reports that Traveloka is reconsidering its plans for a public listing via a Special Purpose Acquisition Company (SPAC) with Peter Thiel’s Bridgetown Holdings. The core issue isn’t whether to go public, but rather how. A Traveloka spokesperson, speaking with travel industry news source Skift, indicated that a public listing is a logical step for the company given its market leadership and growth ambitions.

Instead, the Indonesian travel company is evaluating different avenues, with sources suggesting a traditional U.S. Initial Public Offering (IPO) is now the more likely option, as SPACs “have lost some appeal.” This assessment comes from Bloomberg, though it may be premature to draw definitive conclusions.

Increased regulatory scrutiny is on the horizon, fueled by criticism exemplified in this February headline: “SPAC Investing Often Favors Insiders, Leaving Public Investors Behind.”

However, my colleague Ryan Lawler presented a contrasting perspective this week: Better.com is proceeding with a merger with blank-check company Aurora Acquisition Corp., valuing the company at approximately $7.7 billion. The company’s leadership believes a traditional IPO is suitable for businesses easily categorized within existing sectors. However, a SPAC may be a more appropriate vehicle for Better.com, which, as Ryan reports, “envisions a broader role than simply being a mortgage lender within the financial services landscape.”

Does this represent an exception to the trend? Perhaps, but it could also indicate that SPACs still have potential opportunities.

Thank you for your time. Enjoy your weekend, and The Exchange will resume its regular schedule on Monday! — Anna