Fintech upgrade to launch product buy now, pay later

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 startup that offers people payment cards as well as personal lines of credit.

Unlike a credit card, which allows consumers to rotate their balance, 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 their 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 lower amount.”

Buy now, pay later, or BNPL, has exploded into a $100 billion industry thanks in large part to the coronavirus pandemic accelerating 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 make 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 to 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 wider acceptance,” Laplanche told CNBC. “BNPL often relies on partnerships with merchants.”

“It’s starting to go mainstream online,” he added. “But not so much in store.”

Before launching Upgrade, Laplanche helped make LendingClub the largest peer-to-peer lending platform in the world, connecting investors to borrowers through its marketplace. However, he was ousted in 2016 due to irregularities in loan practices and Laplanche’s alleged lack of disclosure regarding a personal investment.

LendingClub shut down its peer-to-peer lending platform last year and signaled a push into the banking sector with its acquisition of US lender Radius.

Laplanche has come a long way since exiting LendingClub, with Upgrade hitting a $3.3 billion valuation in August. The French-born entrepreneur said it will still be some time before Upgrade goes public, but he wants to make sure the company is ready for an IPO within the next 18 months.

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

“We can hopefully be ready over the next 18 months. Then we will make a decision at that time on what is best for our shareholders and our team members.”

Fintechs jump into BNPL

Upgrade isn’t the only fintech to jump 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 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 we need to support because a certain number of consumers want to use it a certain percentage of the time,” Holland said. “To me, it’s just a way of approaching a bigger share of wallet for our traders.”

In the UK, digital bank Monzo has began offering a BNPL-like product called Flex, which allows customers to split payments into monthly installments, either interest-free for three months or at 19% for six to 12 months. Rival company Revolut also plans to introduce BNPL functionality.

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

Still, the BNPL sector has come under intense scrutiny lately. The UK government plans to impose tougher regulatory controls on the growing industry, fearing services like Klarna could encourage shoppers to spend more than they can afford. The UK Treasury Department is expected to publish a consultation on the reforms next month.