British buy now-pay later provider Zilch is seeking to expand in the U.S. market, saying in a press release this week that it's taking a different approach to the industry than its competitors.
Instead of collecting fees from merchants to move merchandise from their shelves, Zilch is taking advertising fees from brandname companies such as sporting goods retailer Nike, cosmetic-maker Sephora and electronics company Best Buy to showcase their products and court consumers wanting to finance their purchases through installment payments.
Consumers can pay their loans in four installments over six weeks or in one lump sum, and they are eligible for deals and cashback rewards. Zilch can be used at 38.7 million retailers globally through its partnership with U.S. credit card network company Mastercard.
“Unlike traditional point-of-sale finance companies that are just negotiating a fixed fee, we are actually allowing brands to advertise and market to customers,” Zilch CEO and co-founder Philip Belamant said in an interview. “Brands want to pay for successful sales. We can monetize that data on an ongoing basis.”
In the 18 months since it launched in the U.K., Zilch said it has attracted more than 2 million customers, making it one of the country’s largest BNPL providers. Zilch said it has raised $400 million in debt and equity from Goldman Sachs, among others.
As of its latest $110 million funding round in November, London-based Zilch had a valuation of $2 billion, according to a report from news outlet CNBC.
Zilch is entering an increasingly competitive U.S. BNPL market dominated by Affirm, Afterpay, Klarna, PayPal and Zip, none of which currently is profitable. While Zilch said it has 150,000 pre- registered customers in the U.S., San Francisco-based Affirm said this year that it has 11.2 million active customers using its service.
Zilch has opened a U.S. headquarters in Miami and plans to hire 100 employees to staff it over the next year, the company said in the release. Filling those positions will be helped by hiring freezes at major tech and fintech companies, according to Belamant.
“We really actually think that it's a great opportunity and time for us to go and get some phenomenal talent,” he said.
Regulators and consumer activists have argued that the BNPL industry needs closer review from state and federal regulators to prevent consumers from overextending themselves by taking on too much debt. The Consumer Financial Protection Bureau opened an inquiry last year into the industry’s business practices. BNPL players have repeatedly insisted that they are supportive of some regulation.
Buy now-pay later use in the U.S. climbed to an all-time high during the 2021 holiday season. Consumers have continued to embrace BNPL as record-high inflation is squeezing many household budgets.
The 2022 Global Payments Report by payments processor Fidelity National Information Services' Worldpay unit estimated that BNPL will account for 5.3% ($438 billion) of global e-commerce transaction value by 2025, increasing from 2.9% ($157 billion) in 2021.
BNPL is expected to be the fastest-growing payment type in the U.S. through 2025, as will also be the case in Argentina, Belgium, Brazil, Canada, Chile, France, Hong Kong, India, New Zealand, Singapore, and the U.K., the report predicted.
Signs are emerging that the good times may not last.
A survey of 1,500 consumers from mortgage broker LendingTree found that the number of people who have made a late BNPL payment rose 12 points to 43% in 2022 compared with a year earlier.
“That figure is even more disturbing when you consider that BNPL loans are growing more popular by the day and that nearly half of consumers would prefer them to credit cards,” LendingTree said, meaning "a huge number of Americans are overextending themselves using these loans."