The hire purchase business

The "Buy Now, Pay Later" provider Billie is allying with the Swedish payment provider Klarna. This allows online shops 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 the payment is made later. The invoice only arrives in 14 days, after the pants have already been delivered to the mailbox. This is made possible by "Buy now, pay later" (BNPL), a payment method that allows people to buy online in installments. The business with this purchase option is gigantic. The market is growing, there are billion-dollar valuations. In 2020, business with BNPL globally amounted to around four billion US dollars. The US consultancy Grand View Research expects an annual growth rate of 22.4 percent from 2021 to 2028 to around 20 billion US dollars.

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

Klarna focuses primarily on private customers to improve their daily shopping experience. But the company is now looking to expand, to become even bigger. Because bigger and still significantly untapped than the retail market is business-to-business (B2B) commerce for BNPL, i.e. business with merchants. The transaction volume here is significantly higher than in trading with private individuals. The market expects more than a threefold increase in sales over the next few years.

One of the leading German providers for B2B BNPL is the Berlin-based fintech Billie. Founded by Christian Grobe, Matthias Knecht and Aiga Senftleben, the start-up has been offering customers to buy goods immediately and pay later since 2016. In this way, the payment service providers are basically granting a classic loan. In contrast to Klarna, the Berlin-based fintech focuses on business customers. This includes, for example, companies from the electronics, home and garden, furniture, hotel and catering, DIY stores, as well as paper and printing sectors. Billie's offering allows businesses to match the payment terms of their purchases to the payment terms of their sales. "So it's a capital structure optimization offering to ensure healthy balance sheets," Grobe said.

Billie is valued at $640 million

The potential investors see in the model in the marketplace can also be seen in the valuation for 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. In the process, it was able to convince major investors such as the English investment firm Dawn Capital and the Chinese internet company Tencent. Other backers include Creandum, Speedinvest and Picus. But Klarna has also entered the business.

Billie hopes that this will give it the chance to grow significantly. Founder Christian Grobe, however, denies in an interview with Startbase a power struggle with the Swedish provider Klarna. "We entered into a partnership because we can clearly benefit from each other," says Grobe.

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

The numbers Grobe is throwing around seem enticing. The company promises online retailers around 80 percent fewer abandoned purchases thanks to the simple handling and thus more customers who actually order the goods and do not leave them in the shopping cart. In addition, Billie is said to enable shopping cart limits of up to 100,000 euros as well as sales increases of up to 40 percent thanks to higher shopping cart values.

We have been specializing in one area for a very long time and will remain market leader

Christian Grobe, Billie founder

The corona 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 Online Monitor 2021 of the German Trade Association, online trade in Germany will have risen to 83.3 billion euros in 2020. In 2001, it was just €1.6 billion. New BNPL providers such as Afterpay or Affirm are therefore figuratively shooting up like mushrooms. Billie founder Grobe, however, does not see strong competition. "We have specialised in one area for a very long time and will remain the market leader," says Grobe. "But the pandemic has also helped us think more clearly about our priorities," Grobe said. For example, he said, the vendor wants to focus more on the dealer side.

For its plans, Billie has secured loans of $200 million a month. Around 100 million will come from Vereinigte Volksbank Raiffeisenbank, headed by Ralf Magerkurth. Raisin Bank and Varengold Bank are also providing funding. "I think we are looking at a very bright future," Grobe said.

The UK's financial regulator is not as enthusiastic as Grobe about the business model. 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 become over-indebted. The German financial regulator Bafin has also been critical of instalment loans for online shopping. Low interest rates and zero-percent financing, which is partly being courted, are indeed attracting many customers. However, customers have to be careful to pay their instalments on time, otherwise very high interest for late payment will be due.

Grobe does not find the sharp criticism justified, even if business customers are not addressed with the criticism. The private customer is thereby accused of too little independence. "Of course, there is also the immature user," says Grobe. But being able to buy things on account is not a new invention. "Even in the 1950s, you could do that with Neckermann catalogs," he says. Only back then it was more than a phone call that was required. Today, it's just the mere tap of a finger via Klarna.


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