Investors back business-focused buy now, pay later groups

Investors are betting on business-focused, buy now, pay later start-ups that allow customers to defer payments or split them into instalments as companies seek new ways to manage stretched cash flows because of rising costs from energy bills and inflation.

The fortunes of the business-to-business start-ups, with Berlin-based Mondu and London’s Tranch announcing funding rounds last month, contrast with the troubles of more established consumer-focused buy now, pay later groups, hit by people cutting spending as living costs rise.

B2B groups are “all the rage” while the consumer sector struggles, said John Clark, managing director of US operations for fintech advisory firm Royal Park Partners.

He said consumer-focused groups faced “a triple threat” from rising defaults, decreased demand for discretionary spending and higher costs of funding.

The consumer-focused groups, which boomed during the coronavirus pandemic, have been particularly hard hit by growing macroeconomic headwinds with interest rates and inflation rising.

In contrast, B2B providers are likely to enjoy continued demand for credit from small- and medium-sized enterprises, SMEs, Clark said, given their lack of access to cheap, short-term funding.

As with consumer-focused groups, the B2B sector allows users to defer payments and manage their cash flow, with most options targeted primarily at SMEs.

Josh Bell, general partner at UK investor Dawn Capital, added: “While a lot of the early players focused on B2C BNPL [business to consumer buy now, pay later groups], the less penetrated B2B space is an enormous market and, with fewer regulatory headwinds, it makes it an extremely attractive area to invest in.”

Sweden’s privately owned Klarna, a consumer-focused provider, announced in May it was cutting 10 per cent of its staff, while shares in some publicly listed consumer-focused groups such as New Zealand-based Laybuy and Australia’s Zip have slumped close to 90 per cent over the past year.

“For the last 10 to 15 years, companies have been used to deferred payments in offline deals, but digital transactions have been extremely antiquated and very manual,” said Philipp Povel, co-founder and co-chief executive of Mondu.

The Berlin-based B2B provider allows merchants to push payments from 15 to 60 days, and is aiming to launch schemes for other instalments.

At the end of May, it announced that it had raised $43mn in a funding round led by US-based venture capital fund Valar Ventures.

Mondu is hoping to move into other markets, starting with Austria, said Malte Huffmann, the other co-founder and co-chief executive, with ambitions of expanding across Europe and eventually to the US.

The company’s funding round came a week after London-based B2B provider Tranch raised $4.3mn in a funding round led by Flash Ventures.

The stable of B2B providers has grown in recent years. Another Berlin-based start-up, Billie, raised $100mn in October with Dawn Capital, Chinese technology group Tencent and Klarna investing.

The Swedish payments fintech has also partnered with Billie to allow online stores to offer buy now, pay later deals to their business customers.