In the same month, Zilch’s revenue run rate exceeded $130 million, according to a Tuesday (Sept. 3) press release.

“The speed at which Zilch has achieved profitability places it in the same bracket as European FinTech giants such as Revolut, Starling Bank and Monzo,” the release said. “All four companies also reported revenues in excess of $130 million within three to five years, with Zilch almost doubling revenues in the year to March 2024.”

By comparison, the time it takes the average tech company to surpass $100 million in revenue is eight to 10 years in the United States, 15 in Europe and 17 in the United Kingdom, per the release.

“While many have cut their way to profit, we’ve doubled our revenue year on year, expanded our team, saved our 4 million customers over half a billion dollars in fees and interest costs, and generated over $3 billion in new sales for merchant partners through our ad-subsidized payments network,” Zilch co-founder and CEO Philip Belamant said in the release.

The news came nearly three months after Zilch announced it raised $127 million in debt financing via Deutsche Bank, money the company said would help it launch new products for a larger customer base as it gets ready to go public.

Zilch, which calls itself the “world’s first direct-to-consumer, ad-subsidized payments network,” allows customers to buy products and pay off their debt in monthly, interest-free installments.

Consumers are turning to pay later plans as they seek ways to better manage their finances. Among the options merchants need to consider are installment plans linked to consumers’ existing cards.

“Card-linked installment plans help merchants grow and keep things running smoothly despite changing consumer preferences,” PYMNTS wrote last month.

Fifty-seven percent of merchants said they “think consumers will switch to competitors offering these plans, emphasizing the need for innovation,” the report said. “Moreover, 1 in 5 acquirers believe merchants are highly likely to switch to providers that allow them to offer these plans.”

Research showed that more than 70% of merchants prefer shoppers to use their existing general-purpose credit card for installments over other pay-later programs.

The post Zilch Exceeds $130 Million in Revenue and Marks First Monthly Profit appeared first on PYMNTS.com.

The two companies entered into a strategic partnership program by executing a loan and receivables sale agreement and marketing and servicing agreement on Monday (Aug. 26), Sezzle said in a Wednesday (Aug. 28) filing with the Securities and Exchange Commission.

Subject to completion of confirmatory testing and procedures, the program is expected to launch in September, according to the filing.

Under the agreement, WebBank will also serve as the exclusive issuer of all Sezzle subscription products and of Sezzle card products, per the filing.

“WebBank, through Sezzle’s marketing efforts, will offer loans to U.S. customers to finance purchases of merchant products through the Sezzle platform or within Sezzle’s direct merchant network,” the filing said. “Sezzle, subject to WebBank’s review and approval, will act as the administrator of the program and master servicer, with responsibility over the marketing, administration, legal and compliance, application of WebBank’s underwriting criteria, origination assistance, and ongoing servicing functions.”

Sezzle CEO Charlie Youakim said Aug. 7 during the company’s quarterly earnings call that Sezzle was nearing the completion of its implementation with a bank sponsor partner.

The benefits of the sponsorship are expected to include the launch of unified fees; a streamlined regulatory approach; and future potential consumer product launches, including checking accounts, cash advances and credit-building products, Youakim said.

Wednesday’s SEC filing comes on the same day Sezzle said it teamed up with embedded finance platform Liberis to launch Sezzle Capital, a program designed to help small and medium-sized businesses (SMBs) get financing without sacrificing equity.

The program is designed to offer “flexible funding” to SMBs in the U.S., and there are plans to eventually launch in Canada.

“At Sezzle, we’re committed to empowering the next generation of business owners through accessible funding opportunities for merchants of all sizes,” Youakim said in a Wednesday press release announcing the collaboration. “Through our partnership, we’re thrilled to offer our merchants funding via Liberis — without the need to give up equity in their businesses.”

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On a call with analysts Monday (Aug. 26) discussing the Australia-based FinTech company’s fourth quarter fiscal 2024 financial results, CEO Cynthia Scott spoke to this shift.

“Our Americas business had an outstanding year,” Scott said. “…Higher margin channels, including the physical card, saw strong in-store engagement, with card volumes up nearly 150% versus the prior year and in-store volume now driving 20% of all U.S. TTV [total transaction value].”

Overall, the Americas business saw TTV increase 39.5% year over year and revenue rise 45.6%, spurred by “deepening customer engagement,” per Scott.

Indeed, many consumers want the option to pay in stores with BNPL. The report “Tracking the Digital Payments Takeover: What BNPL Needs to Win Wider Adoption,” a PYMNTS Intelligence and AWS collaboration, found that 1 in 3 shoppers want more BNPL availability in brick-and-mortar establishments. Further PYMNTS Intelligence research indicates that BNPL is only available in stores about half as often as online.

As Zip looks to further grow BNPL adoption, it is reportedly considering partnering with Apple to integrate its installment payment capabilities in the U.S. Furthermore, the firm aims to announce deals with more merchants in the country in the near future.

The Trust Factor

Another theme highlighted by Scott was the company’s focus on being a “responsible lender.” This emphasis aligns with a broader trend in consumer behavior where trust and transparency have become paramount, a shift particularly significant in the BNPL sector, which has faced criticism over potential risks associated with easy access to credit.

PYMNTS Intelligence research finds that, among consumers who have used short-term credit, 53% say trust is an important factor when picking a lender.

This focus similarly aligns with Zip’s push to highlight its values around sustainability and ethics. Scott highlighted initiatives around gender balance in the workplace, around corporate sustainability and around “financial wellbeing and inclusion,” saying of the lattermost that its new financial literacy hub has yielded “very positive” responses from consumers.

The company’s initiatives in these areas come as a growing segment of consumers prioritize ethical considerations when making purchasing decisions. In fact, according to PYMNTS Intelligence data, younger generations are considerably more likely than their older counterparts to seek merchants whose values align with their own. The “Generation Zillennial” study revealed that 43% of zillennials — the micro-generation born between 1991 and 1999 — said that it was very or extremely important to them when choosing a merchant that the merchant offers sustainable brands or products. In contrast, only 31% of consumers overall said the same. Plus, 33% of zillennials say it is very important that the merchant’s social values align with theirs, versus 24% of the whole sample.

Meeting the needs of these consumers is especially key considering that they tend to disproportionately make up BNPL providers’ customer bases. Thirty-three percent of zillennials find pay later options very or extremely important when choosing a merchant compared to 20% of the population overall. Consequently, as Zip continues to prioritize customer engagement and financial wellbeing, it stands to strengthen its foothold in the competitive BNPL market.

The post Zip CEO: US Shoppers’ In-Store Card Usage Surges Nearly 150% appeared first on PYMNTS.com.

Those stats from the World Bank underscore the need for these smaller companies — the sole proprietorships, the Main Street shopfronts, the firms with dozens, or perhaps as many as 100 employees — to have consistent access to credit and access to working capital that helps them grow and power their local and national economies. And they also need access to new products that their larger peers have used to their advantage, including credit and buy now, pay later (BNPL).

But there’s a problem. As Alan Koenigsberg, SVP and global head, Large & Middle Market Commercial Solutions, Working Capital and Embedded Finance at Visa, told PYMNTS Karen Webster, in many cases small businesses are underserved from a credit perspective. For the traditional and larger lenders — the big banks especially — extending credit tends to favor larger clients, the investing banking clients that are already in place. That’s not to say that the small and mid-sized business (SMBs) portfolios are not important. They are. But lending to those smaller firms means taking stock of different credit profiles of startups’ failures and risks — and honing a different skillset to identify what smaller firms’ credit needs might be while balancing against lenders’ underwriting criteria.

Context matters where the right credit options are offered, at the right time, to the right SMBs and owners. Many of them are Gen Z and millennials, and expect to have digital offers readily accessible right at the point of sale, including BNPL.

There’s a payoff for the lenders too. As Visa and PYMNTS Intelligence found in the “Embedded Lending: From the Lender’s Perspective” report, companies’ satisfaction with embedded financing can be quite high — about 21% higher than had been seen for companies that got credit but had to go “outside” of the transaction to get approval, and then get back to the transaction to proceed.

Embedded offerings — tied intimately to platforms and software, to business-facing interactions that offer a range of payment options right in the moment — can help level the playing field of credit access. Embedded finance is not exactly new. As Koenigsberg said, the act of taking a financial product and putting it inside nonfinancial conduits started decades ago, with the rise of eCommerce. 

In the current environment, Koenigsberg said, BNPL options are proving especially popular. Embedded BNPL, he said, is akin to “injecting an opportunity for a small business to be able to take advantage of a feature that’s helping many consumers — and many businesses — around the world.”

And, he said, “BNPL winds up being about advocacy — about the small business taking the bull by the horns and saying, ‘I can actually provide myself with incremental working capital by splitting up those transactions’ — and that’s powerful. It’s not a loan per se, it’s about those firms conducting procurement and paying the way they want to pay.” Paying in four installments, he said, helps SMBs plan ahead versus being obligated, in one month, to pay down an invoice, or tackle a credit card bill, in its entirety.

Spreading the Word on BNPL

Visa, in sharpening its business lending advisory and solutions offerings, has been investing in its middle-market business to help their banking clients learn more about the inner workings of working capital, to help embed BNPL into their own client-facing interactions with those SMBs, and to educate them about the availability in the first place — they are often already aware of BNPL, having used it in everyday consumer commerce.

The advisory efforts and the outreach are critical in bringing SMBs and lenders together, and as Koenigsberg said, “Standing up a two-sided network takes time — and that comes typically from marketing, which comes from the FI [financial institution] or merchant the SMB is working with.”

For Visa, he said, “Our job is to democratize, for our financial institutions, the way we go to market … and that’s the value of taking our investment dollars and capex [capital expenditure] dollars and investing  … across our ecosystem.”

As the BNPL industry grows, Koenigsberg said, and becomes more visible to SMBs, “The biggest benefit will go to that group of people that is at the heart of the American — and the global — economy.”

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A PYMNTS Intelligence report, “Build Now, Not Later: How Banks Can Seize the BNPL Opportunity,” created in collaboration with Galileo, examines crucial insights about the current BNPL trend and its implications for traditional financial institutions (FIs). Here are three takeaways from the report that illustrate the importance of BNPL services in shaping the future of banking.

The Rising Demand for BNPL Services Among Consumers

The popularity of BNPL services has seen remarkable growth, driven primarily by younger, digitally savvy consumers. This trend is particularly evident during peak shopping seasons; for instance, consumer spending on BNPL transactions reached $17 billion between November and December, marking a 14% increase from the previous year. This surge indicates a clear shift in consumer preference toward flexible payment options that allow for the deferral of costs without incurring significant interest.

The appeal of BNPL services lies in their seamless, user-friendly nature. Customers appreciate the convenience of managing payments in small, manageable installments, which helps alleviate financial strain during uncertain economic times. Despite this popularity, there are areas for improvement; a portion of BNPL users desire lower fees and enhanced application processes. This presents an opportunity for both FinTechs and traditional banks to refine their offerings and capture a larger market share.

Banks’ Increasing Interest and Investment in BNPL Solutions

In response to the growing consumer demand for BNPL options, many banks and financial institutions are beginning to roll out their own BNPL services. This shift is a strategic move to attract and retain customers who might otherwise turn to FinTech competitors. For example, U.S. Bank has launched its own BNPL service, Avvance, which offers financing and repayment plans at the point of sale and is designed to integrate with existing merchant relationships.

Additionally, partnerships between banks and third-party providers, such as the collaboration between Marqeta and Credi2, are helping financial institutions to expedite their entry into the BNPL market. These alliances allow banks to offer BNPL solutions quickly and efficiently, leveraging the technological capabilities of their partners while tapping into the existing customer base of the banks.

Traditional Banks’ Advantages and Future Potential in BNPL

Although FinTech companies initially pioneered the BNPL space, traditional banks are rapidly catching up. Banks possess inherent advantages that could position them favorably in the BNPL market. A key factor is consumer trust; surveys indicate that a notable portion of Generation Z consumers and other demographic groups have greater confidence in banks compared to FinTechs, particularly concerning fraud prevention and overall financial security.

Banks possess established infrastructures, extensive customer data and advanced risk assessment capabilities. These resources enable them to develop customized BNPL solutions with strong fraud protection and credit management features. By utilizing their experience and existing customer relationships, banks are positioned to offer BNPL services that are secure and seamlessly integrated into their overall financial offerings.

The rise of BNPL services marks a transition toward flexible financial solutions. Banks are entering this market, using their infrastructure and customer base to provide secure, integrated BNPL options. This move offers banks a chance to capture market share and influence the future of financial services by meeting demands for convenience and affordability.

The post Banks Eye BNPL as Way to Reach Gen Z appeared first on PYMNTS.com.

By the Numbers

The PYMNTS Intelligence report “Redefining Retail: Consumer Finance Trends Driving the Evolution of Pay Later Plans” drew from a survey of more than 2,600 United States consumers to understand how and why shoppers were using various types of installment plans.

When it comes to BNPL, the study noted higher adoption among those facing economic challenges than those with a financial safety net. Specifically, 26% of those who live paycheck to paycheck with difficulties paying their bills said they were very or extremely likely to use BNPL in the next 12 months. A slightly lower 21% of those who live paycheck to paycheck without difficulties paying their bills said the same.

For consumers not counting on their next paycheck to get by, that share dropped. Only 10% of those who do not live paycheck to paycheck reported that they expected to use BNPL in the next year.

The Data in Context

BNPL payments are becoming more common, but the regulatory environment is in flux. Last month, Adobe Commerce announced the ability for merchants to offer their customers Klarna’s BNPL services. Since the start of the year, Klarna has also rolled out partnerships with Uber, Expedia and travel retail brand Away, among others.

Meanwhile, the Consumer Financial Protection Bureau (CFPB) ended its commentary period for its proposed BNPL regulations, leaving questions about what companies will have to do to comply with new obligations to consumers and when.

As BNPL services gain traction among consumers, particularly those facing financial hardships, the evolving regulatory landscape will play a role in shaping the future of these payment options.

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Time has expired for companies looking to comment on the Consumer Financial Protection Board’s (CFPB) interpretive ruling on BNPL plans. With the CFPB holding options open to revise the regulations after the comment period is over Thursday (Aug. 1), two companies threw what could be termed a Hail Mary pass in the closing minutes.

Klarna — which was joined on the last day of comments by AARP — expressed its concerns in a strongly worded letter to the CFPB. While the filing indicates that Klarna supports regulation of the BNPL industry, it argues that the CFPB’s approach is misguided. The company contends that BNPL products are fundamentally different from credit cards and should not be regulated under the same framework. Klarna emphasizes that BNPL offers a more transparent, fair and sustainable alternative to traditional credit, with lower default rates and fewer consumer complaints.

“Through this Interpretive Rule, the CFPB is attempting to apply to the BNPL industry rules created for the credit card industry over 50 years ago, before the advent of cell phones, personal computers, and digital BNPL accounts,” the Klarna filing reads. “Not only were these regulations created without modern credit products like BNPL in mind, but with American credit card debt topping $1 trillion dollars it begs the question: are these regulations even working for the products they were initially designed for?”

Klarna joined fellow BNPL company Affirm, which on Friday submitted its commentary on the CFPB’s rule. The CFPB’s proposed interpretive rule under the Truth in Lending Act (TILA) and Regulation Z seeks to extend consumer protection measures akin to those applied to traditional credit cards.

In its letter, Klarna raises several issues with the interpretive rule, including clarifying key terms and provisions. Klarna argues that the rule’s timeline for compliance (60 days from publication on May 31) is inadequate, given the extent of clarification needed. The company also points out potential inconsistencies in how the rule would be applied across different BNPL providers, particularly regarding billing cycles and dispute resolution timelines.

“We believe consumers would be better served by initiating a comprehensive, formal rulemaking process to develop a tailored regulatory framework for BNPL that both protects consumers and fosters innovation,” the filing states.

“This approach would enable consumer advocates, industry stakeholders, and regulators to collaborate effectively, ensuring that the primary focus remains on achieving positive consumer outcomes. We urge the CFPB to reconsider its approach, focusing on positive consumer outcomes rather than applying outdated regulations to a new industry.”

Klarna proposes that the CFPB either rescind the interpretive rule and commence a formal rulemaking process specifically for BNPL products or extend the effective date and provide written clarification on raised questions. The company advocates for a bespoke regulatory framework that recognizes the distinct nature and lower risk profile of BNPL products compared to traditional credit cards. Klarna argues that such an approach would ensure robust consumer protection while fostering innovation and competition in the financial services industry.

On the opposite side of the aisle, the AARP, which advocates for Americans over 50, came out in favor of the interpretive rule in its letter to the CFPB. The organization notes that while BNPL use among older Americans is lower than younger borrowers, it is rapidly increasing. AARP argues that applying Regulation Z to BNPL will protect older consumers from fraud and provide much-needed protections, including transparency in pricing, sufficient disclosures, clarity on dispute resolution and refunds, and determination of a consumer’s ability to repay before extending credit.

AARP emphasizes several key areas for consumer protection in BNPL loans. These include ensuring borrowers can repay, providing a seamless process for disputing transactions and obtaining refunds, and offering clear, upfront information on terms, pricing and potential fees associated with BNPL loans. The organization urges the CFPB to establish clear guidelines for disclosures in plain language and in the consumer’s preferred language.

Additionally, AARP encourages the CFPB to provide consumers with easy-to-understand information about BNPL, its uses, and associated risks through resources like FAQs or guidebooks similar to those published for other forms of credit.

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This capability is meant to appeal to the 40 million Americans who speak Spanish, the company said in a Tuesday (July 16) press release.

“At Sezzle, we’re committed to making financial freedom accessible to everyone, regardless of their background or the language they speak,” Charlie Youakim, CEO of Sezzle, said in the release. “The introduction of our Spanish translation capability is a significant step towards ensuring that all individuals have the tools they need to thrive financially.”

This addition offers a tailored experience for the 22% of Sezzle users who speak Spanish at home, including a user-friendly interface and transparent financial solutions, according to the release.

Another company that rolled out a Spanish-language version of its offering is FinTech mortgage lender Beeline.

Like Beeline’s existing offering, the new Spanish-language home loan experience, which is dubbed Colmena (“hive” in Spanish), will adjust to applicants on the fly, preapprove them in real time, and offer conventional or nonqualified mortgage products like bank statement loans.

In addition, with Colmena, Spanish speakers will be automatically routed down a Spanish customer journey and matched with a bilingual loan officer with certain loan documents in Spanish.

“The launch of Colmena underscores our dedication to making a meaningful difference in the lives of Latino families and fostering greater financial inclusion,” Nick Liuzza, CEO of Beeline, said when announcing the launch of that new offering.

In another recent move by Sezzle, the BNPL platform said in June that it launched a partnership with California’s Vallarta Supermarkets, saying it aims to meet the demand from shoppers to use BNPL for everyday essentials.

When announcing the partnership, Sezzle pointed to a 2024 survey by PYMNTS Intelligence showing that a third of U.S. consumers used a traditional credit card for their last grocery purchase, a figure that has held steady since 2021.

“The use of credit isn’t new to the grocery industry; Sezzle’s payment platform simply presents a modern adaptation of credit in the evolving landscape of consumer finance,” the company said at the time in a press release.

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The partnership will help these merchants meet the growing demand for BNPL, the companies said in a Tuesday (July 2) press release.

“Klarna’s global footprint enables Adobe Commerce merchants to meet the changing needs of their consumers and stay competitive in today’s digital economy,” Jason Knell, senior director of content and commerce partners at Adobe, said in the release.

The collaboration will offer thousands of merchants “a flexible, seamless and smooth way to accept payments,” Erin Jaeger, head of North America at Klarna, said in the release. “This enhances the shopping experience for consumers and boosts the operational capacities of merchants.”

The PYMNTS Intelligence report “Merchants’ Evolving Perspective on the Value of Card-Linked Pay Later Plans” found that BNPL is becoming more popular with consumers and is increasingly accepted by retailers. Eighty-five percent of merchants said the payment method was used more often during online checkout over the past 12 months.

Klarna reported in May that it achieved accelerated revenue growth in the first quarter, with its 29% increase in total revenue in the quarter outpacing the 13% rise it saw in the same period a year earlier.

“This surge is driven by our expanding presence in the U.S., where we continue to onboard major retailers,” Klarna said at the time. “As the preferred choice for consumers’ everyday spending, commerce thrives on the Klarna network.”

In other partnerships, Klarna teamed up with luggage and travel accessories brand Away to offer BNPL options to that firm’s customers, with ride-hailing app Uber to offer that firm’s users new ways to pay for rides and deliveries, and with travel company Expedia to bring flexible payment offerings to travelers in the United States.

As for Adobe, that firm said in March that it tapped unified commerce solution provider Adyen to enable online and in-store payments for global enterprise merchants that use Adobe Commerce. The partnership enables merchants to simplify and scale their customer payment experiences online, offline and across global markets.

For all PYMNTS retail coverage, subscribe to the daily Retail Newsletter.

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The buyers will assume ownership of KCO on Oct. 1, and Klarna’s payment methods will continue to be offered in the checkout, Klarna said in a Monday (June 24) press release.

Selling KCO will allow Klarna to concentrate on its flexible payment methods, which it offers in conjunction with multiple service providers, according to the release.

Klarna has run into conflicts by offering its payment methods directly to merchants through KCO and via distribution through payment service providers (PSPs) like Adyen and Stripe, Bloomberg reported Monday.

By divesting itself of KCO, it eliminates that competition and friction with PSPs and allows KCO to grow under new ownership, according to the report. Klarna has not actively built KCO since 2021 because it was focused on its relationships with PSPs.

In the company’s press release, Klarna CEO and co-founder Sebastian Siemiatkowski said: “I’m so pleased it’s finding a new home, with owners who are carefully handpicked to continue to create outstanding value for our merchant partners. I look forward to working closely with them as they establish the next phase for KCO.”

Having new, dedicated management will allow the KCO business to grow, per the release. Hajabdolahi and his BLQ Invest are known for their “Buy and Build” strategy.

“We are thrilled to acquire Klarna Checkout, and our ambition is to build on the solid foundation established by Klarna and take KCO to the next level, continuously evolving the product to meet the needs of our merchant partners and drive the future of eCommerce,” Hajabdolahi said in the release.

KCO was launched in 2012 in Northern Europe, according to the release. Today, it has a market share of 40% in Sweden and 20% across the Nordics; is available for global use; and features a user experience designed for conversion.

Klarna reported in May that it achieved accelerated revenue growth during the first quarter, with its 29% increase in total revenue outpacing the 13% rise it saw in the same quarter a year earlier.

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