Fintech firm Upgrade is getting into buy now, pay later with short-term installment loans

U.S. fintech start-up Upgrade is set 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 along with personal lines of credit.

Unlike a credit card, which lets consumers revolve their balance, Upgrade takes all the purchases someone makes in a month and creates an installment plan for paying down the debt. The payment plans are typically long-term, ranging anywhere from six to 36 months, and charge a fixed interest rate.

Now, Upgrade plans to launch a buy now, pay later-style product that lets users pay off their debt in four months, without accruing any interest. The company expects to debut the new service in the coming months, Laplanche told CNBC.

“We are working on a version of the Upgrade Card that’s better suited for smaller expenses,” Upgrade’s CEO said in an interview. “In that case, we don’t need to charge interest because it’s a smaller amount.”

Buy now, pay later, or BNPL, has boomed to become a $100 billion industry thanks in large part to the coronavirus pandemic which accelerated the growth of online shopping.

BNPL services let shoppers spread the cost of their purchases over three or four months. Rather than charging consumers, BNPL companies make their money by taking a small fee from merchants on each transaction.

Upgrade’s product will be different to those offered by firms like Klarna, Affirm and Afterpay. Instead of adding a checkout option on merchants’ websites, Upgrade will lump a user’s card purchases together and invoice them what they owe over a four-month period.

“What we like about embedding the product into a card is the broader acceptance,” Laplanche told CNBC. “BNPL often relies on partnerships with merchants.”

Prior to starting Upgrade, Laplanche helped grow LendingClub into the world’s largest peer-to-peer lending platform, connecting investors with borrowers through its marketplace. However, he was ousted in 2016 amid irregularities with loan practices and Laplanche’s alleged lack of disclosure over a personal investment.

Last year, LendingClub shut down its peer-to-peer loans platform and signaled a push into banking with its acquisition of U.S. lender Radius.

Laplanche has come a long way since his exit from LendingClub, with Upgrade reaching a $3.3 billion valuation in August. The French-born entrepreneur said it would be a while yet before Upgrade goes public, but he wants to make sure the company is IPO-ready in the next 18 months.

“We clearly have the size,” he said. “We’re growing very, very fast. We’ve been profitable now for more than a year, which is rare for a company that is growing that fast.”

“We can hopefully be ready sometime in the next 18 months. Then we’ll make a decision at that time on what’s best for our shareholders and our team members.”

Fintechs jump into BNPL
Upgrade isn’t the only fintech jumping on the BNPL bandwagon. Fast, a start-up backed by payments giant Stripe, plans to offer BNPL as a payment method through its platform. The firm, which lets users purchase items in one click across a range of websites, is aiming 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 need to support because a certain amount of consumers want to use it a certain percentage of the time,” Holland said. “For me, it’s just a way of addressing a larger share of wallet for our merchants.”

In the U.K., digital bank Monzo has begun offering a BNPL-like product called Flex, which lets customers split payments into monthly installments, either interest-free for three months or at a 19% rate for six to 12 months. Rival firm Revolut is also planning to introduce a BNPL feature.

It highlights growing interest from companies big and small in the booming BNPL market. PayPal debuted its own version of the service, called Pay in 4, last year. Meanwhile, Twitter CEO Jack Dorsey’s payments processor Square reached a deal to acquire Australia’s Afterpay for $29 billion, and Mastercard jumped into the space this week with an installments program for banks and fintechs.

Still, the BNPL sector has become the subject of much scrutiny lately. The British government is planning to impose tougher regulatory checks on the fast-growing industry amid concerns that services like Klarna are encouraging shoppers to spend more than they can afford. The U.K. Treasury department is expected to release a consultation on the reforms next month.

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