The United Kingdom’s Zilch Becomes the Latest Entrant in the Hotly Contested U.S. BNPL Market

Zilch Technology Ltd. is preparing to become the latest entrant in the U.S. buy now, pay later market. The move hinges on the London-based company’s acquisition of San Francisco-based debt-funding platform Neptune Financial & Management Services LLC (NepFin), a deal Zilch announced on Thursday. The terms were not disclosed.

The acquisition follows a recent extension of a Series B funding round that raised an additional $110 million for Zilch from Goldman Sachs and DMG Ventures. The additional funding came on top of the $80 million raised earlier in the round. 

Zilch says it plans to use the money to secure licensing, meet regulatory requirements, and expand its U.S. operations. Former NepFin senior administrators Albert Periu and Thomas Meister will join Zilch management as chief executive officer and chief operations officer and general counsel, respectively, of Zilch US.

“We’ve been exploring growth options in the U.S. for some time and following the additional funding, now was the perfect time to take another meaningful step towards our U.S. launch,” Zilch chief executive and founder Philip Belamant says in a prepared statement. 

Zilch’s entry into a crowded U.S. market is not without challenges. The U.S. BNPL business has seen several partnerships struck by incumbents in recent months to expand their offerings, such as Affirm Inc.’s partnership deals with e-commerce platforms Amazon.com Inc. and Shopify Inc. Other major BNPL players, such as PayPal Holdings Inc., have taken steps to make their offerings more enticing to consumers. Last month, PayPal dropped late fees for missed payments on its installment products in the United States, the United Kingdom, and France, effective Oct. 1.

“The BNPL market in the U.S. is seeing more partnerships which means it is a mature market. It’s a tough time to get in,” says Sheridan Trent, a research analyst for The Strawhecker Group. 

Two potential keys to success for Zilch are building loyalty to its offering, especially among young consumers, and carving out share in vertical markets. 

“Loyalty is key because 30% to 40% of young consumers have tried BNPL and that figure is likely to grow even higher now that Amazon has partnered with Affirm to offer BNPL,” Trent says. “There are a lot of similar BNPL offerings, so to win loyalty [the new offering] has to do what the consumer needs, such as stretching payments out over a longer period. With an offering similar to what’s already out there, it’s tough to pick up customers.”

Pursuing vertical markets is another way Zilch can capture market share. Klarna AB, for example, struck a deal last year with POS terminal maker Verifone Inc. to offer BNPL as a payment option in the United States and Europe.

“There is a lot of vertical expansion within BNPL, and that may be an opportunity [for Zilch] to differentiate itself,” says Trent.