Everything you need to know about the apps for paying in installments

Everything you need to know about the apps for paying in installments

It is the new trend for a generation increasingly wary of old banks and credit cards. In the United Kingdom even a neologism was born, to klarna, from the name of the Swedish scaleup of the same name. Meaning: buy an object and pay it in three installments with one click, without the need for financial and, above all, without interest. Something similar has happened recently only with Google. It seems that what today goes by the name of Buy now pay later (Bnpl) was born in the nineteenth century from a commercial policy of the Singer industry, that of sewing machines. Today, of course, fintech tools offer different possibilities.

Normally, you pay in three installments. The first tranche immediately, the second and third after a period of time that varies - depending on the country - from two weeks to a month. But some companies tailor the extensions to the customer's size. Interest-free. Who puts in the money, then, the money needed to make the mechanism work? The sellers. Because these apps are a formidable purchase incentive.

Thus, shopkeepers are willing to take on commissions that are - on average - around 4% of the transaction and are compensated by the increase in orders. In case of large quantities, the commission is lowered. In addition, there may be a fee charged on each individual transaction.

The sector was judged to be in full expansion. But the siren sounded in May, when Klarna was forced to lay off 600 people. In the same weeks, the scaleup, which was valued at 45.6 billion dollars last summer (a record in Europe), saw a drastic drop in valuation. Today, reports the Bloomberg agency, he is working on the next round of financing with an estimated value of around six billion. What happened?

Klarna: the giant that grew too fast To understand the success of the BNPL it is better to start from the beginning. It seems that there is a disaffection from credit cards. “Only 50% of millennials have one,” says Francesco Passone, Klarna's country manager in Italy. Millennials were born between the early 1980s and early 2000s. Among the young people of Generation Z it is no better. This trend has driven investor confidence: the Swedish mastodon has in the past cashed in rounds of financing worth over 600 million euros with leading investors, including Sequoia Capital, Silver Lake, Bestseller Group, Dragoneer, Permira, Visa, Ant Group and Atomic.

But "war and inflation", according to CEO Sebastian Siemiatkowski, led Klarna to lay off 10% of the global workforce, which was around six thousand people, at the end of May. All this a few days after the opening of a branch in Milan, ironically in the WeWork coworking, another giant hit hard by the economic situation in recent years, in that pandemic case. The focus of the presentation, entrusted to Casaleggio Associati, was a survey on new jobs created by e-commerce. Are the two hundred Italian employees at risk? "I would say no", replies to sportsgaming.win Passone.

The rumor is that the company has grown too much quickly, also by virtue of an extreme approach that tends to keep the customer on the platform as long as possible, a super-app that allows you to manage every aspect of the purchase.

Passone indirectly confirms: " Last year we acquired numerous startups to offer a full range of services that go well beyond deferred payments ". At Klarna they call it smooth shopping: a smooth shopping experience like oil, before, during and after the transaction. “The Buy now pay later is just one of the services of our ecosystem - continues Passone -. On our app, the range is wide: there is also the possibility of requesting advice from a connected salesman from the store, or a live demonstration, for example of a vacuum cleaner ”.

At the news of the layoffs (arrived with a cold press release), a former employee put online the list of those who had lost their jobs overnight, with qualifications and contact details (here is the Google doc) . The list had the sense of favoring the search for a new job. Warned of this, Siemiatkowski tried to get out well. “We made a tough selection to hire them, if I were a recruiter I would spend some time on this list”, he wrote in a post on Linkedin, declaring himself sorry for the decision taken. Just below, there was also the link to the document. The move, however, did not have the hoped-for success in terms of communication.

With the assessment reduced by 80%, a course correction was necessary. But the brand remains solid, the service is used, the foundations for business continuity are there. Although losses of $ 245 million (first quarter 2022) and $ 634 million (last year) weigh, the 400,000 retail partners (which include names such as Nike, Ikea, Sephora, Expedia) and 150 million users represent a on which to start again for what also Siemiatkowski defines a new phase.

Clearpay: the Australian listed Klarna is not the only player in the Bnpl market in Italy. Among the main players is the Australian Clearpay, born in 2014 with the explanatory name of After Pay, and which it maintains in some markets, "including the main one, the United States", the country manager tells sportsgaming.win Italian Federica Ronchi. In 2019 the landing in the United Kingdom, in 2021 in Italy, France and Spain. “But we are also present in New Zealand and will soon be opening in Germany,” she adds.

Clearpay has been acquired by Block, a Nasdaq-listed company. As such, it has specific disclosure obligations that other competing companies do not currently have. “An ecommerce chooses to integrate a service like ours because it draws various advantages - explains Ronchi -. Firstly, because the possibility for the end user to split the payment allows them to spend a little more and translates into an average ticket increase of between 30% and 40% depending on the industry. In the case of Clearpay, in Italy we work a lot in the world of beauty and pharmaceuticals: the average ticket in this area is quite low, around 38-40 euros, and in this case we are able to bring increases of over 40% ".

“Secondly, the BNPL recorded an increase in the conversion rate. The average increase we see is about 22%. Another very important element to underline is the repetitiveness of the purchase. The last element that pushes merchants to use this type of services - concludes Ronchi - is the possibility of receiving free and qualified traffic: for example, a user who has already met Clearpay comes to our shopping directory, sees which are the stores that they offer Clearpay and then goes to the seller's website to buy. Worldwide, we bring thirty-five million users to our merchants. But you can also buy it on our app ".

"We want to grow together with the shopkeeper, and we aim for organic and sustainable growth - reports the manager - The millions of euros that others invest in TV and advertising we share with the sellers, in the form of marketing contributions who can invest in Facebook, Google, clearly mentioning us. We aim not to disintermediate by bringing customers to our app, and unlike others we do not sign exclusive contracts ". Clearpay has 1,200 employees. In the second half of 2021 it recorded net losses of $ 345 million.

ScalaPay, the Italian company of the ScalaPay group is the tricolor answer to Buy now pay later. He is one of the stars of the Italian startup firmament. "More than an app, we are a payment experience - financial director Raffaele Terrone tells sportsgaming.win -. We facilitate the sale and improve the shopping experience ". For example, with a product called Chekckout Magic: “With one click we allow you to buy quickly, reducing the churn rate.”

Unlike Klarna and ClearPay, ScalaPay is not (at least, not yet) neither bank nor payment institution: it relies on Stripe to manage transactions. “We are not the ones who give credit to the consumer who wants to buy something - confirms Terrone -. The seller has a credit from the customer, and we then buy this credit through our securitization vehicles regulated by the Bank of Italy or by the authorities of other countries. In our country the vehicle is called Incremento Spv. All this information is in the document that the customer reads at the time of purchase. The customer relationship will then be with us, which we will withdraw from the account or card as asset manager ".

If Klarna focuses on fashion and technology and Clearpay on beauty and pharmaceuticals, ScalaPay is focused on travel." We we focus on travel, also thanks to the hiring of Matteo Cicalè, former Booking, who knows the sector well ", explains the manager. The average ticket, in this case, is high." We are also closing agreements with airlines and railway operators - Terrone resumes -. Besides travel, there are also fashion and beauty ".

Why should a seller choose you?" It is a very fragmented market, with many local champions. In China, for example, without Alipay you won't go anywhere. Even installment payments - continues the manager - have global leaders: we have differentiated ourselves from our competitors because, instead of having a global strategy, we have aimed at specific markets, trying to understand the needs of each individual country. In Italy, no one accepted prepaid cards, which were considered too risky: we were the first to do so ".

The choice could have produced a direct consequence: at the last, very rich round of 497 million dollars (led by Tencent and Willoughby Capital) has also joined Poste Italiane, with an investment of 27 million. Close to the operation, the founder and Simone Mancini estimated that 30-40% of ScalaPay customers use prepaid cards, and most of them were Postepay. "In this way, the company (Poste, ed) had the opportunity to monitor the growth of our business".

What prompted investors to trust you, just born in 2019, by investing these figures? “The very simple and scalable business model. An immense potential growth, also because acquiring a new customer is cheap ", says Terrone. And then the low fixed costs." The only important thing? Marketing, but we can cut it quickly. "The figures show a rapid progression: sixteen thousand euros turnover in 2019, 1.3 million in 2020, 8 million in 2021. "Fast growth, costs under control: this is why the investors believed in us. We are against debt, and this was appreciated".

The numbers of the customer base are much smaller than the rivals: the affiliated sellers are 3,500, the customers two million. "But just a year ago we were just over 100 thousand - notes Terrone -. We are also present in physical stores: with 'Scalapay app, it is possible to generate a barcode and complete the purchase with that ".

Few employees, 230." But they are growing strongly ", says Terrone and there is talk of 400 at the end of the year The development team is based in Australia, but will soon be moving to It alia. Rapid growth does not scare Terrone. Arriving later allows you to take advantage of the experience of those who were already on the market. “The investments we make are very prudent. In these market conditions we will grow, but moderately and taking into consideration the capital market scenarios ”. The Italian scaleup also focuses on sympathy: “Our consumer is fond, he does not see us as a tool: he likes to be part of the community. We do initiatives, contests, and we have a very well-kept Instagram channel ".

Risk management company Bnpl is loved by consumers, but has not failed to raise criticisms: essentially, companies are accused of inducing customers to buy without taking into account their economic resources, resulting in over-indebtedness . Some users, in the countries where they are available, have six or seven accounts.

To our question about it, all three companies reply that they have ceilings, which vary according to the type of customer. Why These Companies Don't Lend Money: The real business is risk management. And success is directly proportional to the skill in doing it. “Protecting ourselves is our core business”, effectively summarizes Passone.

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