The buy-now-pay-later (BNPL) industry has a lot to worry about. Regulators around the world are increasingly investigating how to police the industry, fearing that leaving it unchecked could see vulnerable customers buried under mountainous debt. At the same time, the stocks of publicly traded BNPL companies like Affirm, Humm and OpenPay have dipped far below their 2021 peaks.

Despite this gloomy outlook, Italian BNPL startup Scalapay has just secured $497m in a Series B funding round, bringing the grand total raised by the fintech to over $700m. This follows a $155m funding round in September 2021. The company was founded in 2019.

While declining to provide any exact figures, CEO and co-founder Simone Mancini tells Verdict that Scalapay’s “latest valuation puts the company well into unicorn territory.”

Chinese tech giant Tencent and international investment firm Willoughby Capital co-led the raise. Venture capital giant Tiger Global backed the company’s Series A round and returned for the Series B, having invested in embedded finance startup Weavr earlier this week.

Other investors backing the Series B include Gangwal, Moore Capital, Deimos and Fasanara Capital. Goldman Sachs advised Scalapay as a placement agent for the round.

“We will use the funds to expand into new markets and verticals such as travel,” Mancini says. “We’ll also use the financing to expand our team across the EU and continue the development of Magic, our checkout product, and M&A activity.”

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However, Mancini’s bullishness does not extend to one area: recruitment.

“Hiring remains to be our toughest challenge,” the Scalapay CEO says. “There is a war on talent at the moment for many well-funded companies across many sectors and in some way, the talent pool has gone from being regional to global in the last two years.”

Other companies face the same problem. Following Covid-19, the Great Resignation has become something business leaders across the world keep front of mind. Fifty-nine per cent of workers say the pandemic made them more likely to quit their jobs and 39% of HR leaders believe labour shortages could last for up to three years, according to research from people management platform Lattice.

Challenges now, solutions later

Scalapay’s new cash injection comes against a background of huge BNPL growth during the pandemic. The coronavirus crisis accelerated customers’ migration from offline to online shopping. Intimately linked to this shift is the fact that more people also started to use services enabling them to either split or postpone payments, often on ecommerce sites.

As a result, a wealth of BNPL startups such as Zilch have entered the scene. Payment providers Mastercard and PayPal as well as challenger bank Monzo have also launched instalment services over the course of the pandemic.

Scalapay is also not alone in raising money: Swedish BNPL quadradecacorn Klarna is rumoured to be working on a new funding round that could see its valuation jump to $60bn.

Analysts expect the sector will be worth $166bn by 2023, according to recent GlobalData thematic research.

However, BNPL firms face several challenges. The first is that several publicly traded BNPL companies have seen their market cap plummet at the beginning of the year.

US-based Affirm, which partnered with Apple last summer to launch a Canadian BNPL service, has seen its shares fall from a $168.52 peak in November to $36.41. The plunge has been attributed to the company issuing a third-quarter fiscal revenue forecast below analysts’ expectations at the start of 2022.

It should be noted that the drop of these stocks have coincided with tech stocks in general having fallen sharply at the start of the year due to market uncertainties.

Despite this, Mancini is confident that Scalapay will be able to weather the recent headwinds.

“We’ve been able to fundraise a significant amount in a very difficult period for BNPL, possibly the worst trading environment the space has seen,” he tells Verdict. “I think that fundamentals remain strong and the market continues to grow. We have not seen any deterioration in forecasts or performance so we remain optimistic about the future of the business and the sector in general.”

Regulation is another big hurdle for the soaraway sector to overcome. Market watchdogs across the world are increasingly investigating how to best police the industry after advocacy groups warned that weak regulations would put citizens’ financial wellbeing at risk. The added scrutiny could force BNPL providers, like Scalapay, to introduce affordability checks and to provide clear information to customers about the risks involved in using their services.

“We welcome this and think most of the changes are quite pertinent when it comes to protecting customers,” Mancini says. “I think an important element is being able to assess customers’ ability to pay. This adds the challenge of being able to carry out an additional check during the purchase experience, something we have been working on for a while.”

Scalapay making a mark in the BNPL sector

Despite the recent slump on stock exchanges and the threat of upcoming regulations, it’s fair to say that the BNPL sector is growing crowded. Mancini says Scalapay will differentiate itself from its rivals by its focus on merchant relationships, having added 400 new merchants to its network since September.

“Unlike competitors, we do not view the merchant as a channel to be used for customer acquisition on the road to building a competing proposition,” he says. “Driven by this mission of empowering merchants to offer their customers amazing experiences, we also launched a platform called Magic. The platform is designed to revolutionise the checkout experience for customers and solve the most painful areas for merchants wishing to provide a world-class e-commerce solution.”

Scalapay is currently active in Italy, France, Spain, Portugal, Germany, Finland, Portugal, Austria, Ireland and the Netherlands.

GlobalData is the parent company of Verdict and its sister publications.