The current plight of the buy now, pay later (BNPL) industry has been likened to the dotcom bubble of the 2000s — from skyrocketing demand and adoption and a proliferation of venture capital to plummeting valuations and elusive profits.
“There are a lot of companies now that have run into liquidity issues, especially because funding costs have increased,” Simone Mancini, CEO at Milan-based BNPL provider Scalapay, told PYMNTS in an interview. “And we’re seeing that take a toll on a lot of BNPL providers, [particularly smaller ones].”
But according to Mancini, there’s still a tremendous amount of opportunity in the space for companies that can weather the storm that has been caused by less liquidity in the private markets, declining debt and equity investor appetite for the higher interest rates.
Scalapay, for instance, seems to be in a safe place for now. “There’s a large part of the loan book that we can fund ourselves so we don’t have as much exposure to interest rates,” he said, pointing to the nearly $500 million in Series B funding the firm raised in February of last year.
One of the opportunities he said BNPL providers can take advantage of is the massive shift towards digital platforms, not just in the eCommerce space but in other areas like healthtech, where an increasing number of doctor’s appointments are being booked via digital platforms.
“I think all purchases will eventually be funneled through a digital platform and so understanding that and being able to position ourselves and manage risk as this industry grows, and as credit switches from traditional credit providers and card issuers to these digital platforms, is a really big opportunity,” Mancini explained.
The European BNPL provider, which has 3.5 million customers across several countries in southern Europe, is also exploring mergers and acquisitions (M&A) opportunities, tapping into a BNPL consolidation trend he discussed in a previous interview with PYMNTS.
“We’re seeing companies that either have interesting technology stacks or [a significant] customer base but have not necessarily been viable in the current environment or able to raise funding,” Mancini noted of the many opportunities this creates for their product roadmap and expansion.
In the meantime, Scalapay has recently acquired Italian payment institution Cabel IP to accelerate its growth across Europe, a deal which, according to Mancini, will lead to huge cost savings for the BNPL provider.
“When we pay our merchants, rather than going through other payment service providers, we can now do that directly with the merchant,” he said. “And that means big savings in terms of unit economics.”
Hard hit by the pandemic, the travel industry is seeing a rebound to pre-pandemic highs, and BNPL lenders are moving to cash in on the trend. In fact, most of the major industry players including Klarna, Afterpay and Affirm offer a BNPL option for certain travel partners, giving consumers access to a point-of-sale loan to finance their trips.
Against that backdrop, Scalapay launched a travel vertical last year, a product which Mancini said is one of its best performing categories despite declining consumer spending in other categories: “It’s well and truly compensating for the softening of retail spend.”
The trend is also fueled by consumer spending shifting away from more frivolous purchases towards experiences, he added, reflected in the strengthening of their partnerships with travel industry players including online travel agents (OTAs), major hotels, resorts, train and ferry companies.
In terms of products for physical stores, the FinTech firm has expanded its in-store QR code payment feature with cards, launching over 7,000 physical points of sale in 5,000 stores across Italy, France and Spain.
And with merchants focusing more on building an omnichannel strategy that offers a fully integrated shopping experience, Mancini said helping brick-and-mortar merchants to improve the in-store checkout experience will be a big focus area moving forward.
While BNPL headwinds have intensified amid rising interest rates, inflation and softening consumer demand, the industry still holds promise, attracting tech giants like Apple into the world of payment by installments.
But although penetration of wallets like Apple Pay and Google Pay has increased in Europe, Mancini said it remains relatively low and has a long way to go before adoption really ignites in markets across southern Europe, which are less mature in digital payments than other subregions.
For traditional banks, he added that there’s a growing awareness that BNPL is a win-win model as they navigate the new terrain of integrating with eCommerce technology and the work that goes into marketing and building an active community and engagement.
Moreover, “you need to have commerce in your DNA and understand B2B2C [business-to-business-to-consumer] in order to make this work,” he argued, pointing to players in Italy and France that have launched with very limited success so far.
It’s why Scalapay has adopted a strategy that drives more value for merchants, Mancini said, becoming much more ingrained in the shopping process “and ultimately, harder to displace when it’s just a bank that wants to move into the sector and offer a payment method.”
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