Upgrade CEO Renaud Laplanche speaks at a conference in Brooklyn, New York, in 2018.
Alex Flynn | Bloomberg via Getty Images
US fintech startup Upgrade is poised to enter the increasingly crowded buy now, pay later market.
Upgrade, which was founded by former LendingClub boss Renaud Laplanche in 2016, is a digital banking start-up that offers people payment cards as well as personal lines of credit.
Unlike a credit card, which allows consumers to spin their balances, Upgrade takes all the purchases someone makes in a month and creates an installment plan to pay off the debt. Payment plans are generally long term, ranging from six to 36 months, and charge a fixed interest rate.
Now, Upgrade plans to launch a buy now, pay later style product that allows users to pay off debt in four months without accruing interest. The company plans to launch the new service in the coming months, Laplanche told CNBC.
“We are working on a version of the upgrade card that is more suitable for small expenses,” the CEO of Upgrade said in an interview. “In this case, we don’t need to charge interest because it’s a smaller amount.”
Buy Now, Pay Later, or BNPL, has exploded into a $ 100 billion industry thanks in large part to the coronavirus pandemic which has accelerated the growth of online shopping.
BNPL’s services allow buyers to spread the cost of their purchases over three or four months. Rather than charging consumers, BNPL companies earn their money by taking a small commission from merchants on each transaction.
Upgrade’s product will be different from those offered by companies like Klarna, Affirm, and Afterpay. Instead of adding a payment option on merchant websites, Upgrade will consolidate a user’s card purchases and charge them what they owe over a four-month period.
“What we love about integrating the product into a card is the broader acceptance,” Laplanche told CNBC. “BNPL often relies on partnerships with merchants.”
“It is starting to spread online,” he added. “But not so much in stores.”
Prior to launching Upgrade, Laplanche helped make LendingClub the world’s largest peer-to-peer lending platform, connecting investors and borrowers through its market. However, he was ousted in 2016 due to irregularities in lending practices and Laplanche’s alleged lack of disclosure about a personal investment.
Last year, LendingClub shut down its peer-to-peer lending platform and reported a surge in the banking industry with its acquisition of US lender Radius.
Laplanche has come a long way since exiting LendingClub, with Upgrade reaching a valuation of $ 3.3 billion in August. The French-born entrepreneur has said it will still be some time before Upgrade goes public, but he wants to make sure the company is ready to go public within the next 18 months.
“We clearly have the size,” he said. “We are growing very, very fast. We have been profitable for over a year now, which is rare for a business that is growing so quickly.”
“We can hopefully be ready over the next 18 months. Then we’ll make a decision at that point on what’s best for our shareholders and our team members.”
FinTechs launch into BNPL
Upgrade isn’t the only fintech taking the BNPL train. Fast, a start-up backed by payments giant Stripe, plans to offer BNPL as a payment method through its platform. The company, which allows users to purchase items with one click on a range of websites, aims to roll out the feature in the first quarter of 2022, CEO and co-founder Domm Holland told CNBC.
“It’s a payment method that we have to take care of because a number of consumers want to use it a certain percentage of the time,” Holland said. “For me, it’s just a way to send more of the wallet to our traders.”
In the UK, digital bank Monzo has started offering a BNPL-like product called Flex, which allows customers to split payments into monthly installments, either without interest for three months or at a rate of 19% for six to 12 months. Rival company Revolut also plans to introduce BNPL functionality.
It highlights the growing interest of businesses, large and small, in BNPL’s growing market. PayPal launched its own version of the service, called Pay in 4, last year. Meanwhile, Square, the payment processor of Twitter CEO Jack Dorsey, has struck a deal to acquire Afterpay in Australia for $ 29 billion, and Mastercard has jumped into space this week with a payout program for them. banks and fintechs.
Yet the BNPL sector has become the subject of intense scrutiny in recent times. The UK government plans to impose tighter regulatory controls on the rapidly growing industry, fearing that services like Klarna may encourage buyers to spend more than they can afford. The UK Treasury Department is expected to issue a consultation on the reforms next month.