London-based fintech Zilch has today closed a mammoth $110m Series C funding round and become the UK’s latest billion dollar company in record-breaking time.
The round brings Zilch, whose product capitalises on the lucrative Buy Now Pay Later (BNPL) sector but in many ways resembles a credit card, to a $2bn valuation – four times the $500m it was worth in its last private investment round eight months ago, now a “double unicorn”.
And it got there at breakneck speed – in 14 months between Series A and unicorn status, which the company points out is faster than British success story Cazoo.
The latest investment was led by Ventura Capital, a pre-IPO tech investor that has previously backed Spotify, Didi and Uber, and Gauss Ventures, an early stage investor that has backed London fintech Curve. It was also boosted by existing investors, which include Goldman Sachs.
Zilch plans to use the cash injection to launch in the US, where it has already set up an office in Miami with around 10 employees working on its transatlantic expansion.
In a crowded, soon-to-be-regulated BNPL market, how is it attracting this amount of capital and growing at a rate of almost 200,000 new customers a month?
First, it was one of the first in the sector to be granted a full consumer credit license from the FCA, which founder and CEO Philip Belamant tells City AM has been a “huge advantage”.
A regulatory crackdown on the booming BNPL sector is looming after the Treasury launched a consultation on the policy options for the market last month.
Since then, many of the fintech’s rivals have been clambering to update their wording around their credit arrangements and even launching new alternative revenue streams (ahem, Klarna.)
But Belamant believes Zilch has already covered its back with regards to many of the regulatory sticking points – which investors find attractive, too.
“They certainly take a lot of comfort knowing that we’ve built the business with regulation at the forefront,” Belamant says.
“A lot of investors say to us – did you guys have a crystal ball? How did you predict this would happen?”
One area regulators are keen to scrutinise is the extent to which rivals structure their product around the checkout page – where he says there is “a point to be made about the degree of impulse.”
“Zilch doesn’t live on the checkout page and never will,” Belamant says. “Instead customers come to us and sign up knowing that it’s a debt instrument that they can use to manage their finances. It means they come to us for meaningful purchases that are considered.”
Rather than partner with select retailers to allow customers to pay using its BNPL product at the point of purchase – like rivals Klarna, Afterpay and Clearpay – Zilch allows customers to pay at any retailer that accepts Mastercard, in many ways resembling a card product.
But unlike a credit card, Zilch charges no interest or late fees – which is how it functions as a BNPL product.
This differentiated approach is what Zilch hopes will set it apart from the crowded market – and Belamant says he “owes some gratitude” to the incumbents who have spent a lot of time and money getting users on board with BNPL, and for enabling Zilch to plug the gap in areas they fall short.
After interviewing thousands of BNPL users before building its product, Zilch honed in on two factors: letting customers know how much they can spend from the outset, so they don’t face a bounce back at the checkout stage; and allowing customers to use Zilch everywhere – not just where it has struck a deal with a retailer.
“We don’t underwrite the transaction with the retailer, we underwrite customers – that’s the main difference,” Belamant says.
Zilch does this by using a combination of customer open banking data, soft credit checks, and monitoring purchase behaviour – which it says allows it to constantly update users’ spending limits as well as ensure they can repay.
With the fresh capital under its belt, the startup will now focus on “aggressive expansion” in the US, where it has repeated the same regulation-first approach as in the UK, and has obtained a license to launch nationwide through a deal with Cross River Bank – used by US incumbent Affirm.
And as the BNPL sector attracts more and more scrutiny in Zilch’s home country, Belamant is feeling pretty confident the company will remain unscathed.
“Because of our credit license, there’s so many things we’re already doing in terms of advertising and consumer information already,” he says.
“If the regulator is carving these things out, the good news is we already comply.
“Things should get easier for us, stay the same, or perhaps regulation will act as a tailwind.”