The installment purchase business

The "Buy Now, Pay Later" provider Billie is joining forces with the Swedish payment provider Klarna. This allows online stores to offer the payment method not only to private customers, but also to corporate customers via Klarna. The market is worth billions.

A tap of the finger and the new trousers are ordered. But you don't pay until later. The invoice only arrives in 14 days, after the trousers are already in the letterbox. This is made possible by "Buy now, pay later" (BNPL), a payment method that allows people to buy online in installments. Business with this purchase option is huge. The market is growing, with valuations in the billions. In 2020, global business with BNPL amounted to around four billion US dollars. The US management consultancy Grand View Research expects an annual growth rate of 22.4 percent to around 20 billion US dollars from 2021 to 2028.

One of the European market leaders in the BNPL business is Klarna. The Swedish payment provider is considered the most valuable non-listed start-up in Europe and is valued at around 40 billion euros. More than 90 million customers use the fintech's payment option worldwide.

Klarna focuses primarily on private customers in order to improve their daily shopping experience. However, the company now wants to expand and become even bigger. This is because business-to-business (B2B) commerce for BNPL, i.e. business with merchants, is larger and even more untapped than the private customer market. The transaction volume here is significantly higher than in trade with private individuals. The market expects sales to more than triple in the coming years.

One of the leading German providers of B2B BNPL is the Berlin-based fintech Billie. Founded by Christian Grobe, Matthias Knecht and Aiga Senftleben, the start-up has been offering customers the option to buy goods immediately and pay later since 2016. The payment service providers essentially grant a classic loan. In contrast to Klarna, the Berlin-based fintech focuses on business customers. These include, for example, companies from the electronics, home and garden, furniture, hotel and catering, DIY and paper and printing sectors. Billie's offer enables companies to adjust the payment terms of their purchases to the payment terms of their sales. "It is therefore an offer of capital structure optimization to ensure healthy balance sheets," says Grobe.

Billie is valued at 640 million US dollars

The potential that investors see in the model on the market can also be seen in the valuation of Billie. Investors now value the fintech at 640 million US dollars. In its last financing round at the end of October, Billie raised 100 million US dollars. It was able to convince major investors such as the British investment firm Dawn Capital and the Chinese internet company Tencent. Other investors include Creandum, Speedinvest and Picus. Klarna has also entered the business.

Billie hopes that this will give it the opportunity for significant growth. However, founder Christian Grobe denies a power struggle with the Swedish provider Klarna in an interview with Startbase. "We have entered into a partnership because we can clearly benefit from each other," says Grobe.

Billie wants to use the fresh funding to expand internationally and improve its digital business experience. Klarna, on the other hand, is increasing its access to the B2B market. "So far, there is no other provider that offers BNPL as a fully automated payment method with modern user guidance in the merchant sector like Klarna," explains Grobe. The corresponding offer for German Klarna business customers is set to launch in the first quarter of 2022 and then in other European countries.

The figures Grobe throws around seem tempting. The company promises online retailers around 80 percent fewer abandoned purchases thanks to the ease of use and therefore more customers who actually order the goods and do not leave them in their shopping cart. In addition, Billie is said to enable shopping cart limits of up to 100,000 euros and sales increases of up to 40 percent thanks to higher shopping cart values.

We have specialized in one area for a very long time and will remain the market leader

Christian Grobe, Billie founder

The coronavirus pandemic is also playing into the hands of the market and Billie. The increasing shift of purchasing processes in the business customer sector from offline to online is accelerating the growth of the online payment sector. According to the German Retail Association's Online Monitor 2021, online retail in Germany rose to 83.3 billion euros in 2020. In 2001, the figure was just 1.6 billion euros. New BNPL providers such as Afterpay and Affirm are therefore springing up like mushrooms. However, Billie founder Grobe does not see any strong competition. "We have specialized in one area for a very long time and will remain the market leader," says Grobe. "However, the pandemic has also helped us to think more clearly about our priorities," says Grobe. For example, the provider wants to focus more on the retailer side.

Billie has secured loans amounting to 200 million US dollars per month for its plans. Around 100 million comes from Vereinigte Volksbank Raiffeisenbank under the management of Ralf Magerkurth. Raisin Bank and Varengold Bank are also providing funds. "I think we are looking at a very bright future," says Grobe.

The British financial regulator is not as enthusiastic about the business model as Grobe. It is currently investigating the strong growth of payment offers based on the BNPL principle and fears that private customers will be tempted by the new payment models to take on too much debt. The German financial supervisory authority Bafin has also expressed criticism of installment loans for online shopping. Low interest rates and, in some cases, advertised zero-percent financing are attracting many customers. However, customers must also ensure that they pay their installments on time, otherwise very high late payment interest will be due.

Grobe finds the harsh criticism unjustified, even if the criticism is not aimed at business customers. Private customers are accused of not being independent enough. "Of course, there is also the underage user," says Grobe. However, being able to buy things on account is not a new invention. "You could already do that with Neckermann catalogs in the 1950s," he says. Only back then it took more than a phone call. Today it's just a simple tap with a finger via Klarna.