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Sector trends - July 2022: Consumer Finance

UK & European Financial Services M&A: Sector trends H2 2021 | H1 2022 — Consumer Finance

Insight
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15 min read

BNPL steals the show—20 successful European BNPL provider funding rounds in the past 12 months, covering the full spectrum from Seed through to late-stage.

 

Overview

Current Market

  • High M&A activity levels—BNPL steals the show

We Are Seeing

  • Skyrocketing M&A activity in the BNPL vertical:
    • Established banks JV into BNPL (e.g., Barclays' JV with Amazon and Virgin Money's JV with Global Payments)
    • BigTech JV into BNPL (e.g., Apple's JV with Goldman Sachs)
    • First movers JV to retain market share (e.g., Klarna's JV with Stripe)
    • Smaller lenders stockpile lending firepower – >20 successful BNPL provider funding rounds in the last 12 months, covering the full spectrum from Seed through to late-stage
    • BNPL leaders consolidate market share (e.g., Zip's acquisition of Twisto and Payflex)
  • P2P lenders pivot away from retail (e.g., Funding Circle, Zopa, Lending Works, ThinCats and Landbay all closed their retail platforms in the past 6 months)

Key Drivers/Challenges

  • Financial sponsor equity cheques turbo-charge lenders. In the last 12 months:
    • >20 funding rounds led by VC investors
    • PE investors back rapidly growing lenders (e.g., Vitruvian Partners' US$50 million equity investment into Pine Labs)
  • Trade consolidators:
    • Enter new markets (e.g., PayPal acquisition of Paidy)
    • Redouble efforts to conquer foreign markets (e.g., Barclays' acquisition of US$3.8 billion Gap Credit Card portfolio)
    • Gain first-mover advantage in burgeoning geographies (e.g., Weaver Fintech's acquisition of 85% of PayJustNow)
    • Solidify market share (e.g., Revolut's acquisition of Nobly)
    • Integrate service offerings (e.g., Athene's acquisition of Foundation Home Loans)
  • Consumer lenders seize the opportunity to accumulate growth capital (e.g., in3, MarketForce, Colendi, Scalapay, Koyo and Juni all successfully completed Series A funding rounds in the past 12 months)
  • New entrants successfully scale barriers to entry (e.g., Fintern, Lipa, Later and Lamaa all successfully completed pre-Series A/Seed funding rounds in the past 12 months)

Trends to Watch

  • Consumer lenders confront the harsh reality of fraught discussions with borrowers:
    • As borrowers are quickly weaned off government-backed COVID-19 re-payment forbearance/deferral relief programmes
    • As borrower default rates keep pace with interest rate hikes
  • Incoming regulation to manage:
    • Overreliance on BNPL—UK's HM Treasury indicated tighter regulation in its 1st UK consultation on BNPL sector published in October 2021
    • Potentially harmful lending practices—Ireland's CBI's new consumer protection legislation applicable to hire purchase, consumer finance and BNPL providers
    • Potentially harmful advertising practices—UK Advertising Standards Authority's crackdown on DivideBuy's advertising campaign

 

Our M&A Forecast

New entrants and disruptors across Europe are likely to continue to enjoy receptive market conditions in the short term, resulting in continuing high M&A activity levels. However, as established banks flex their consumer reach muscles and regulators draw lines in the sand, the medium term appears less certain.

 

Healthy buyer/investor appetite

Deal highlight: 

White & Case advised Zip, a global leader in digital retail finance and payment systems, on its acquisition of 60% of Hemenal Finansman, the Turkish consumer finance business, from OYAK Portföy Yönetimi.

Deal highlight: 

White & Case advised Klarna, one of European's most high profile fintech unicorns, on: its acquisition of discount browser extension Piggy; and its acquisition of Hero Towers, the UK's leading 'social shopping' e-commerce platform.

Banks:

  • Bank Leumi: (Consumer lending) Acquisition of 20% of Click Credit (Febrary 2022)

Trade consolidation:

  • Zip (BNPL): Acquisition of Hemenal Finansman (April 2022)
  • Weaver Fintech (BNPL): Acquisition of 85% of PayJustNow (February 2022)
  • Afterpay (BNPL): Acquisition of 10% of Clearpay (December 2021)
  • Klarna (December tech): Acquisition of Piggy (December 2021)
  • DDM Debt (Consumer debt): Acquisition of Swiss Bankers Prepaid Services (December 2021)
  • Revolut (POS): Acquisition of Nobly (November 2021)
  • Zip (BNPL): Acquisition of Twisto (November 2021)
  • PayPal (BNPL): Acquisition of Paidy (September 2021)
  • Zip (BNPL): Acquisition of Payflex (September 2021)
  • Barclays (Credit cards): Acquisition of Gap Credit Card portfolio (August 2021)
  • Zilch (BNPL): Acquisition of Neptune Financial (August 2021)
  • Square (BNPL): Acquisition of Afterpay (August 2021)
  • Better (Digital mortgage broker): Acquisition of Trussle (July 2021)
  • Athene (Mortgage lending): Acquisition of Foundation Home Loans (July 2021)
  • Klarna (E-commerce platform): Acquisition of Hero Towers (July 2021)

International investment:

  • TransUnion (Personal credit platform: Acquisition of minority stake in Monevo (October 2021)

PE/VC equity cheques:

  • Valar Ventures (BNPL): Participation in US$43 million Series A funding round for Mondu (May 2022)
  • Adit Venture Capital and Fasanara Capital (BNPL): Participation in US$55 million Series A debt and equity funding round for Playter (June 2022)
     
  • Flash Ventures (BNPL): Participation in £3.5 million pre-Seed funding round for Tranch (May 2022)
  • Force Over Mass, Waterfall Asset Management and Finch Capital (BNPL): Participation in US$85.3 million Series B funding round for in3 (May 2022)
  • LocalGlobe and Northzone (Credit cards): Participation in £20 million equity funding round for Yonder (March 2022)
  • Inventure (BNPL): Participation in €4 million Seed funding round for Anyday (March 2022)
  • Vitruvian Partners (BNPL): US$50 million equity investment into Pine Labs (March 2022)
  • Founders Fund (Corporate credit cards): Participation in US$200 million equity funding round for Ramp (March 2022)
  • Finch Capital (BNPL): Participation in US$11.1 million Series A funding round for in3 (March 2022)
  • STV and Sequoia Capital India (BNPL): Participation in US$54 million Series B funding round for Tabby (March 2022)
  • Tencent and Willoughby Capital (BNPL): Participation in US$497 million Series B funding round for Scalapay (February 2022)
  • V8 Capital Partners (Consumer finance): Participation in US$40 million Series A funding round for MarketForce (February 2022)
  • Fasanara Capital (BNPL): Participation in US$120 million equity and debt funding round for ViaBill (February 2022)
  • Tencent, GR Capital and Roosh Ventures (BNPL): Participation in €210 million Series C funding round for Alma (February 2022)
  • Hambro Perks (Consumer lending): Participation in £8 million Seed funding round for Fintern (February 2022)
  • Cauris Finance, Lateral Frontiers VC, GreenHouse Capital, SOSV IV, Sayani Investments and Axian Financial Services (BNPL): Participation in US$12 million pre-Series A funding round for Lipa Later (January 2022)
  • Coatue Management and DST Global (Consumer lending): Participation in US$280 million Series F funding round for Upgrade (November 2021)
  • Ventura Capital and Gauss Ventures (BNPL): Participation in US$110 million Series C funding round for Zilch (November 2021)
  • FinTech Collective (Consumer lending): Participation in US$52 million Series B funding round for Anyfin (October 2021)
  • Invesco Developing Markets Fund (BNPL): US$100 million investment in Pine Labs (September 2021)
  • Re-Pie (Microcredit): Participation in US$30 million Series A funding round for Colendi (September 2021)
  • Tiger Global (BNPL): Participation in US$155 million Series A funding round for Scalapay (September 2021)
  • Force Over Mass (Consumer lending): Participation in US$50 million Series A funding round for Koyo (September 2021)
  • Ingka Investments (BNPL): Successful US$22.5 million investment in Jifiti (August 2021)
  • Founders Fund (Corporate credit cards): Participation in US$300 million Series C funding round for Ramp (August 2021)
  • Global Founders Capital and STV (BNPL): Participation in US$50 million Series B funding round for Tabby (August 2021)
  • Goldman Sachs Asset Management and DMG Ventures (BNPL): Participation in US$110 million Series B extension funding round for Zilch (July 2021)
  • Goldman Sachs (Consumer lending): Participation in €140 million Series G funding round for Younited Credit (July 2021)
  • Felix Capital and DST Global Partners (Consumer lending): Participation in US$21.5 million Series A funding round for Juni (July 2021)

 

Established players reclaim market share:

More UK banks are expected to move into the fast-growing BNPL sector as upcoming regulation is set to ease reputational risk concerns. BNPL accounted for 5% of transaction values in 2020 and is growing at between 60% and 70% annually. (S&P Global, November 2021)

More banks are taking the "if you can't beat them, join them" approach to BNPL. Banks of all sizes are turning to a new cottage industry of fintech software providers who build BNPL platforms. (S&P Global, October 2021)

  • CSOB (BNPL): Acquisition of 50% stake in Mallpay (April 2022)
  • NatWest (BNPL): Launch of UK BNPL offering (March 2022)
  • Santander (BNPL): Launch of Zinia (January 2022)
  • Barclays (BNPL): Instalment payments JV with Amazon (December 2021)
  • Virgin Money (BNPL): BNPL digital wallet JV with Global Payments (November 2021)

 

Fintech giants pivot to BNPL:

Industry figures estimate that BNPL lending is likely to increase by 52% to well over £20 billion in 2022 compared to 2021. (Finextra, June 2022)

  • Zopa (BNPL): Launch of UK BNPL offering (June 2022)
  • Raisin (BNPL): BNPL JV with Mondu (April 2022)
  • PayPal (BNPL): Launch of Pay in 30 in Germany (January 2022)
  • NewDay (BNPL): Launch of NewPay (November 2021)
  • Stripe (BNPL): BNPL JV with Klarna (October 2021)
  • Mastercard (BNPL): Launch of Mastercard Installments (September 2021)
  • Curve (BNPL): Launch of Curve Flex (September 2021)
  • Monzo (BNPL): Launch of Monzo Flex (September 2021)
  • Funding Circle (BNPL): Launch of FlexiPay (September 2021)
  • LayBuy (BNPL): Launch of UK BNPL app (September 2021)
  • Apple (BNPL): Apple Pay Later JV with Goldman Sachs (July 2021)

 

New BNPL entrants:

  • MultiPay (BNPL): Launch of Irish instalment payments offering (June 2022)
  • PollenPay (BNPL): Launch of UK instalment payments offering (March 2022)
  • Zilch (BNPL): Launch of pan-European retailer agnostic digital card offering (January 2022)
  • Railsr (BNPL): Launch of UK and German instalment payments offering (January 2022)

 

Smaller lenders stockpile lending firepower:

OpenMoney finds 57% of adults aged 18 to 50 have now used BNPL schemes, up from 49% in 2020. (Finextra, December 2021)

Barclays' survey revealed that 2 in 5 admit they lack a full understanding of how BNPL products work. (Finextra, December 2021)

There was a 51% increase in the use of BNPL payment methods in Europe during Black Friday, compared to 2020. (Finextra, December 2021)

The sudden onset of the COVID-19 pandemic in 2020 caused an unprecedented hit to credit card borrowing, amidst rising popularity of BNPL services. (Financial Times, September 2021)

1 in 10 UK BNPL shoppers have been chased by debt collectors, rising to 1 in 8 young people. (Finextra, September 2021)

  • Mondu (BNPL): Successful US$43 million Series A funding round led by Valar Ventures (May 2022)
  • Creditspring (Consumer credit): Successful £48 million Venture funding round led by Monomyth Group (May 2022)
  • Tred (Carbon tracking debt card): Successful £600k crowdfunding round (May 2022)
  • Playter (BNPL): Successful US$55 million Series A debt and equity funding round led by Adit Venture Capital and Fasanara Capital (June 2022)
  • Tranch (BNPL): Successful £3.5 million pre-Seed funding round led by Flash Ventures (May 2022)
  • in3 (BNPL): Successful US$85.3 million Series B funding round led by Force Over Mass, Waterfall Asset Management and Finch Capital (May 2022)
  • Yonder (Credit cards): Successful £20 million equity funding round led by LocalGlobe and Northzone (March 2022)
  • Anyday (BNPL): Successful €4 million Seed funding round led by Inventure (March 2022)
  • Pine Labs (BNPL): Successful US$50 million equity investment from Vitruvian Partners (March 2022)
  • Ramp (Corporate credit cards): Successful US$200 million equity funding round led by Founders Fund (March 2022)
  • in3 (BNPL): Successful US$11.1 million Series A funding round led by Finch Capital (March 2022)
  • Tabby (BNPL): Successful US$54 million Series B funding round led by STV and Sequoia Capital India (March 2022)
  • Scalapay (BNPL): Successful US$497 million Series B funding round led by Tencent and Willoughby Capital (February 2022)
  • MarketForce (Consumer finance): Successful US$40 million Series A funding round led by V8 Capital Partners (February 2022)
  • ViaBill (BNPL): Successful US$120 million funding round led by Fasanara Capital (February 2022)
  • Alma (BNPL): Successful €210 million Series C funding round with participation from Tencent, GR Capital and Roosh Ventures (February 2022)
  • Fintern (Consumer lending): Successful £8 million Seed funding round led by Hambro Perks (February 2022)
  • Lipa Later (BNPL): Successful US$12 million pre-Series A funding round led by Cauris Finance, Lateral Frontiers VC, GreenHouse Capital, SOSV IV, Sayani Investments and Axian Financial Services (January 2022)
  • Lamaa (BNPL): Successful US$5.06 million Seed funding round led by Wa'ed (Saudi Aramco) (December 2021)
  • Upgrade (Consumer lending): Successful US$280 million Series F funding round led by Coatue Management and DST Global (November 2021)
  • Zilch (BNPL): Successful US$110 million Series C funding round led by Ventura Capital and Gauss Ventures (November 2021)
  • Billie (BNPL): Successful US$100 million Series C funding round led by Dawn Capital (October 2021)
  • Atome (BNPL): Successful US$500 million investment from Standard Chartered (October 2021)
  • Anyfin (Consumer lending): Successful US$52 million Series B funding round led by FinTech Collective (October 2021)
  • Pine Labs (BNPL): Successful US$100 million equity investment from Invesco Developing Markets Fund (September 2021)
  • Colendi (Microcredit): Successful US$30 million Series A funding round led by Re-Pie (September 2021)
  • Scalapay (BNPL): Successful US$155 million Series A funding round led by Tiger Global (September 2021)
  • Koyo (Consumer lending): Successful US$50 million Series A funding round led by Force Over Mass (September 2021)
  • Jifiti (BNPL): Successful US$22.5 million investment from Ingka Investments (August 2021)
  • Ramp (Corporate credit cards): Successful US$300 million Series C funding round led by Founders Fund (August 2021)
  • Tabby (BNPL): Successful US$50 million Series B funding round led by Global Founders Capital and STV (August 2021)
  • Zilch (BNPL): Successful US$110 million extension to Series B funding round led by Goldman Sachs Asset Management and DMG Ventures (July 2021)
  • Younited Credit (Consumer lending): Successful €140 million Series G funding round led by Goldman Sachs (July 2021)
  • Juni (Consumer lending): Successful US$21.5 million Series A funding round led by Felix Capital and DST Global Partners (July 2021)

 

BNPL providers heed regulator rumblings:

  • Klarna: Disclosure of information to UK credit agencies on use of BNPL services (May 2022)
  • Zilch (BNPL): Affordability checking JV with Experian (April 2022)

 

Retail P2P—exit stage left:

  • Funding Circle: Closure of retail platform (March 2022)
  • Fellow Finance: Closure of retail platform (March 2022)
  • Zopa: Closure of retail platform (December 2021)
  • Lending Works: Closure of retail platform (December 2021)
  • ThinCats: Closure of retail platform (December 2021)
  • Landbay: Closure of retail platform (December 2021)

 

Coming of age:

  • Nayifat Finance Co. (Consumer finance): SAR3, 400 million Saudi Exchange IPO (November 2021)
  • DelfinGroup (Consumer finance): Nasdaq Riga IPO (October 2021)

 

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