British fintech bank BNPL Zilch raises $125 million and plans to IPO within 2 years

LONDON — British fintech company Zilch said Wednesday it has raised $125 million in debt financing from the German banking giant. Deutsche Bank in a deal that will help the company triple sales in the next couple of years and move closer to an initial public offering.

The company, which offers customers the opportunity to purchase goods and pay off debt in interest-free monthly payments, said the debt was structured as a securitization in which multiple loans could be bundled together.

Zilch initially received credit for its installment plans and other loans from Goldman SachsPrivate lending division. The company said the deal with Deutsche Bank includes more flexible terms and will allow it to borrow up to $315 in total, including from different banks.

Philip Belamant, CEO and co-founder of Zilch, noted that the terms of the agreement with Goldman Sachs were beneficial for the young, fast-growing startup, but ultimately too restrictive. Zilch’s capital needs have increased as the business has matured and required a more flexible credit agreement, he said.

“For us, we think this is an important milestone in the growth phase of the company, meaning we’ve gone through the process that we have with Goldman, it’s been a great relationship and partnership,” Belamant told CNBC. “But now we are moving to securitization… so we [can] keep scaling.”

An additional $190 million in credit will become available to Zilch as the firm continues to grow. Belamant said the firm is already planning to enter into agreements with other banks to raise more debt in the coming months.

The move is a sign that buy now, pay later upstarts are continuing to double down on their product and lending growth even as larger incumbents in finance and technology exit the once-buoyant market.

This week, Apple announced the closure of its BNPL Pay Later program, which allowed users to split purchases into four interest-free payments. Instead, it will integrate third-party services from companies like Affirm and Citi. Meanwhile, Goldman Sachs recently sold Greensky, the BNPL firm it bought in 2021.

With $125 million in additional capital, Belamant said the company’s path to an IPO is likely to accelerate, and Zilch currently plans to go public in the next 12 to 24 months.

The deal will help Zilch reach $3.75 billion in gross sales by 2026, Belamant said.

He explained that for every dollar of debt raised, Zilch can generate $30 in gross merchandise value (GMV)—the combined value of sales processed on its platform.

So, with $125 million in capital, this would generate gross sales of $3.75 billion. Once Zilch reaches its maximum funding threshold of $315 million, the company expects to generate nearly $10 billion in GMV by 2026.

Zilch has already generated over £2.5 billion in GMV since its founding in 2018. The firm reported revenue of £30 million ($38 million) for the 12 months ended March 2023. Losses totaled £71.7 million, marginally lower than the 2022 loss of £71.7 million. 78.3 million.

Zilch has three main ways to make money. The first is through interchange fees, where card networks withdraw funds from a merchant’s bank account every time a consumer makes a payment. The second is commissions, where sellers pay to appear on the Zilch app.

Zilch also has a promotional sales network where retailers are provided with space to promote their products to consumers. The UK firm claims to be able to achieve conversion rates of up to 55%, more than 10 times higher than the search industry average.

Belamant cautioned that the firm was closely monitoring the uncertainty surrounding the upcoming UK election and market conditions in general.

“It’s hard to say definitively that we’re in this range just because of the market. [and] elections are taking place [so] obviously we’ll see what happens,” he said.