The buy-now-pay-later (BNPL) industry has had a really bad 2022. Market leader Klarna has suffered a down round that slashed its valuation from $45.6bn to $6.7bn and been forced to cut staff, as have several other firms. Publicly traded rivals like Affirm have been struggling on the stock market, and others have been forced to wind down some of their operations. Lawmakers gearing up to introduce sets of regulations to better police the industry could cause the industry to shrink further.
Despite the market turmoil and the absolute plethora of BNPL startups to see the light over the past few years, the team behind Tymit believes the timing is just right to roll out yet another BNPL startup.
“It’s not a market for one player or two,” Robustiano Tubio, CFO at Tymit, tells Verdict. “The lending market is a granular market typically. In any case, prior to BNPL, there were banks and banks shared a bit of the market share each so it was never a one-winner-takes all market.”
He argues that Tymit has a lot of things speaking for it, including “through the roof” Trustpilot ratings and the fact that the London-based venture has just topped up its coffers with a £23m Series A round. Luxury retailer Frasers Group led the round. Tymit declined to disclose the valuation following the raise. The startup will use the funding to accelerate its product development and support the launch of its B2B2C instalment programme proposition for merchants.
Tubio also suggests that the company isn’t hobbled by the uncertainty of the changing regulatory space, saying that it has been a fully regulated payments provider since before the launch in 2019.
How different is Tymit from Klarna?
Tubio doesn’t want to name anyone as Tymit’s main rival, instead saying that the startup aims to provide an option for merchants who “are sick and tired of getting off-the-shelf or standardised BNPL products,” and says the venture offers a service bespoke to them. Nevertheless, when the fintech CFO explains where the fintech firm fits into the world, he pulls attention to where he believes BNPL businesses like Klarna fail merchants.
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“They want a tailor-made BNPL programme where they own the customer data, where they can own the lending if they choose to, and shape and craft the experience to their liking,” he says. “That’s where we come in. I won’t say we are replacing Klarna: Klarna will stay for the small scale merchants but the large scale merchants [like Frasers] are likely to want their own tailor-made experience.”
Nevertheless, Tymit’s main product has some striking similarities with one launched by Klarna: a credit card. Klarna launched its own physical credit card in the UK in January this year. The card is essentially an extension of its BNPL offering, which originally enabled users to delay payments for 30 days.
Tymit’s credit card, on the other hand, allows the user to spread the cost over three months at 0% or up to 36 months at 22.9% APR. Unlike Klarna, Tymit offers merchants three options to tap into the service: a Tymit branded digital card, a partner-branded card or an entirely white label credit card.
Tymit CEO felt traditional lenders were “stuck in time”
Interestingly, both Tymit and Klarna share a dislike for traditional credit cards. Klarna executives are wont to say that people fear credit cards more than death. Similarly, Tymit can track its origins back to its CEO and co-founder Martin Magnone’s tenure as a consultant at Bain & Company and his dismay over the way traditional lenders treated customers.
“He used to consult for Amex and [Citibank] and Capital One and that type of American lender,” Tubio explains. “He was exposed to very profitable books, but felt that the customer experience was stuck in time, with the lending experience being particularly stuck in time. It was very convenient for the card issuer but not very convenient for the user because you ended up borrowing as a default for not paying the card in full in time.”
Teaming up with his brother Nicolas Magnone, who now serves as Tymit’s COO and CTO, and Tubio, Martin Magnone moved to London in 2017 to set up Tymit to disrupt traditional lending.
Tymit aims to mainly make its money through lending and through interchange fees through its payments service. However, it also aims to make money from late fees.
Customer advocacy groups have criticised the BNPL industry for relying on late fees. For instance, Citizens Advice warned in September 2021 that UK BNPL shoppers had been charged £39m in late fees over the previous year and that debt collectors had chased one in 10 consumers. These groups warned that late fees could contribute to customers ending up putting their financial wellbeing at risk. In response to this criticism, Klarna removed its late fees for its financing option in October last year.
When asked about the decision to keep late fees, the Tymit CFO argues that it is “not so much a revenue source or revenue making instrument,” but a “determent to prevent people from falling in arrears.”
Tymit secures funding as BNPL industry is balancing on the edge
Tymit secured its new cash injection as market watchers fear investment into the fintech industry is drying up. These fears are commonly attributed to a combination of Brexit, Russia’s unjust war in Ukraine and the hangover from Covid-19.
It is true that the number of venture capital (VC) deals flowing into the sector has shrunk in the past year. In 2021, the fintech industry secured over $84.6bn across 2,362 deals, according to research firm GlobalData. To date, north of $35.6bn have been injected into the industry across 1,306 deals in 2022. Statements like that would suggest that there has, indeed, been a tremendous drop in investment.
However, that sentiment fails to recognise that 2021 was an exceptional year. Fintech startup rode high on "the new normal" caused by the pandemic. At the time, huge swathes of the world still imposed strict social distancing rules. This meant more people worked at home.
As a result, there was an uptick in online shopping. At the same time, people also found their finances constrained, encouraging them to seek out new ways to balance their budgets. The surge in ecommerce and the search of alternative financing options caused a wealth of fintech opportunities.
The BNPL industry skyrocketed through the stratosphere last year as a result of these trends. Not only did it see startups like Scalapay and Zilch raise millions of dollars in funding, it also saw Big Tech players like Apple enter the fray, vying for a slice of the market.
However, the $84.6bn raised in VC money in 2021 should be viewed in context with the years preceding the boom. In 2019 and 2020, the industry raised just above $32.1bn and $30.6bn respectively.
So the $35.6bn raised in 2022 is still a rather good result. Still, with three months to go, it is unclear whether or not the industry will be able to outperform the previous peak of 2018, when the industry secured $47.6bn.
There are some who are bullish that the BNPL industry will pick up speed again. A new study from Juniper Research has found that consumer spending using BNPL platforms will reach $437bn globally in 2027, up from $112bn in 2022.
It is unclear whether or not smaller startups will be able take part of that. Analysts have warned that bigger players – such as PayPal, Mastercard, American Express, Goldman Sachs and Apple – entering the BNPL space have put the future of smaller firms at risk.
“We expect Big Tech companies to dominate the buy-now-pay-later market,” Beyza Karakoy, analyst at GlobalData, recently said. “While companies such as Klarna and Afterpay will need to change their models to survive, Big Tech has the capacity to seamlessly incorporate buy-now-pay-later into its platforms, forcing fintech’s with unsustainable revenue models out of the market.”
GlobalData is the parent company of Verdict and its sister publications.