BNPL everywhere

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Hello everyone – Anna here, covering for Alex who’s enjoying some well-deserved but soon-ending vacation time. The Exchange also went on pause for the week, but the news didn’t stop, so strap on!

The buy now, pay later space has been one of the hottest fintech verticals since at least last August, when Square announced that it would spend a mind-blowing $29 billion to acquire Australian company Afterpay. But things really caught fire this week, with newsworthy BNPL-related announcements all around. Let’s take a closer look:

While the biggest news was undoubtedly PayPal’s decision to acquire Japan’s Paidy for $2.7 billion, Amazon closing a deal with Max Levchin’s Affirm was also a major move. What clearer sign that BNPL is going mainstream than the ability for U.S.-based Amazon shoppers to defer payments on purchases of $50 or more?

And it’s not just about a handful of players in the world’s leading e-commerce markets: BNPL startups all over the world have been growing, as reflected in recent rounds. For instance, Europe-focused Scalapay raised $155 million at a $700 million valuation, while Colombia’s Addi disclosed a $75 million extension to its Series B totaling $140 million.

“Buy now, pay later is officially everywhere, and Latin America is no exception,” Mary Ann Azevedo wrote for TechCrunch. This isn’t a copy-and-paste of the same model, though. Different markets have different needs, leading to important tweaks. The main one? BNPL isn’t necessarily synonymous with e-commerce.

As a matter of fact, Addi’s partners also include brick-and-mortar stores. This is understandable in markets where e-commerce, although fast growing, doesn’t yet have the same levels of adoption as in the U.S., and where installments were already a thing; but it is also happening as a natural expansion of BNPL beyond e-commerce and retail.

San Francisco-based startup Wisetack is a good example of this trend: It brings buy now, pay later to in-person home services, from HVAC repairs to plumbing. A very fragmented space that Wisetack cleverly worked its way around by teaming up and accessing the professional customer base of vertical SaaS providers such as Housecall Pro and Jobber. Oh, and it just raised $45 million.

What’s particularly relevant with buy now, pay later expanding beyond retail is that it encompasses larger expenses. For example, according to Wisetack CEO Bobby Tzekin, purchases made to service-based businesses average $4,000 to $5,000. Exciting for BNPL companies … and also likely to increase scrutiny from regulators who already had this new segment under review.

Although BNPL is framed as interest-free and an alternative to credit card payments, public authorities and consumer protection bodies have expressed concerns that it may encourage overspending and underplay the risks that customers are taking.

This translated into a regulatory push in the U.K, and in the EU, potentially casting a shadow over Klarna’s “plausible but not imminent” listing. Having raised $3.7 billion to date according to Crunchbase, it would be logical for the Swedish quadradecacorn to follow Affirm’s footsteps and go public, but timing will matter.

With so much funding flowing into the sector and consolidation already happening, it will definitely be interesting to watch.

Factorial, Wave and SPACs

The Exchange may have been on hiatus this week, but there were plenty of stories to digest across TechCrunch and Extra Crunch. Here are the ones that most caught my attention:

Factorial and betting on SMBs: Spanish HR startup Factorial raised an $80 million Series B round at a $530 million valuation. This is noteworthy in itself, and also for being led by Tiger Global. However, my favorite part is that it puts the spotlight on the money to be made by serving SMBs.

Shameless plug: This was also a key point of my Expensify EC-1 a few weeks ago.

As TechCrunch’s Ingrid Lunden pointed out, “Factorial’s rise is part of a much longer-term, bigger trend in which the enterprise technology world has at long last started to turn its attention to how to take the tools that originally were built for larger organizations, and right-size them for smaller customers.”

Right-sizing typically means avoiding unnecessary complexity in the product, and it is often done better by companies that only focus on this, rather than by enterprise incumbents. And it isn’t just a phase either: More and more, it is understood as a segment that companies can focus on forever.

A Wave of funding: Earlier this week, Africa recorded its biggest Series A to date: a $200 million round into mobile money startup Wave. With a valuation of $1.7 billion, this also turned the U.S.- and Senegal-based company into French-speaking Africa’s first unicorn.

It is not surprising that a fintech company was the first one to reach this milestone, Tage Kene-Okafor noted: Fintech has been attracting the lion’s share of VC funding on the continent. Per The Big Deal, a Substack newsletter on Africa’s startup scene, 48% of venture capital flowing into African startups in the first half of 2021 went to fintech — and this giant round may skew things even further when the time comes to check yearly tallies.

On a higher level, this seems to confirm that Africa’s tech sector is set to break records in 2021, which would be nice to see — especially after a tough 2020, and more generally, in a context of underfunding.

To SPAC or not to SPAC: According to Bloomberg, Traveloka is pulling back on its plans to go public via a SPAC with Peter Thiel’s Bridgetown Holdings. The question, it seems, is not whether to list: Talking to travel industry news site Skift, a Traveloka spokesperson described going public as “a natural evolution given Traveloka’s position as a category leader [with] aspirations to grow the business further.”

Instead, the Indonesian travel heavyweight is debating which path to follow — and sources told Bloomberg that it now will likely choose a traditional U.S. IPO instead, as SPACs “have fallen out of favor.” These are Bloomberg’s words, not mine; because it might still be early to say.

Sure, tighter regulation is looming, amid criticism that is well captured by this February headline: “When it comes to SPAC investing, the house always wins. The public, not so much.”

Nevertheless, my colleague Ryan Lawler brought a great counterpoint this week: Better.com is set to merge with blank-check company Aurora Acquisition Corp. at “a post-money equity value of approximately $7.7 billion.” According to its chief executives, a traditional IPO makes sense for companies that can easily be categorized. But a SPAC may be a better fit for a company like Better, which as Ryan reports, “has bigger ambitions than just being seen as a mortgage lender compared with other financial services companies.”

Is this the exception to the rule? Maybe, but it could also be a sign that SPACs still have a card to play.

Thanks for reading and have a great weekend, The Exchange will be back to its regular schedule from Monday onward!  — Anna

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