Big bets on salary advance and BNPL apps

February 1, 2022

Bearded indian man on metro station using app in his smartphone

Jonathan Kriegel


Workers in the gig economy provide their services flexibly to help employers scale their operations to match market conditions. Still, they are increasingly demanding equally malleable payment solutions to help them better manage their finances in turn. The trend has driven a rapid rise in the number of fintech and smartphone apps worldwide that offer salary advances and interest-free loans over the last few years. And venture capitalists and investors alike have increasingly made large bets on their long-term success.

Pakistani fintech Abhi raised US$40m of Series A funding in November last year after launching only four months earlier, for example. The company charges employees a small transaction fee to withdraw up to 50% of their accrued wages (i.e., earned but not paid) interest-free, at any time through its smartphone app or web portal. Reports suggest that the combined annual salaries of the Pakistani employed labor force exceed US$65bn a year. Yet financial institutions calculate that formal lending channels provide just US$3bn of credit, suggesting many of the country’s citizens are obtaining loans from other sources that may charge exorbitant rates of interest and encourage criminal activity.[i]

Spanish fintech PayFlow recently received US$9.1m of funding to further develop its salary-advance platform, for example, bringing total investment to US$13.6m[ii]. It sells a salary advance service that employers subsequently offer to their staff, charging them to use the technology rather than levying fees on employees themselves.

Customers that have their wages paid into an account hosted by the UK headquartered digital banking app Revolut has been able to pay £1.50 to release up to 50% of their salary early since the summer of 2021[iii]. Revolut plans to roll out its Payday feature to the US later, plugging into employers’ payroll systems to give employees a view of what they have earned so far in the month but have not yet been paid for.

Hastee launched in the UK as far back as 2017, with the company boosted by £208m of investment led by Umbra Capital and IDC Ventures in December 2019. Users receive a first withdrawal of up to £100 every month and are charged a 2.5% fee for further transactions. Another example comes from Wagestream; a 2018 start-up backed to the collective tune of £65m after its latest £20m round of funding by July 2020. Employers pay for the platform, which allows staff to draw up to 50% of their salary early for £1.75.

In the US, New York-based Clair raised US$15m in Series A funding in June last year after being set up with US$4.5m of seed funding barely six months earlier. And in the Philippines, Manila-based start-up Advance launched its salary advance app in 2019 has raised an undisclosed amount of funding from VCs, including Dymon Asia Ventures and Accion Venture Lab.

BNPL valuations soar

It’s a similar story for buy now pay later (BNPL) apps that offer people the option of splitting the costs of goods or services purchased with their smartphones into smaller payments. With BNPL favored by the younger generations, many of which have smartphones but not credit/debit cards, investors have recognized a lucrative long-term opportunity and poured large volumes of financial backing into start-ups which have snowballed to attract huge valuations. Statista estimates that BNPL finance arrangements currently account for only 2.1% of the global eCommerce market, illustrating the considerable potential for further growth.

Research published by Flagship Advisory Partners suggests that recent valuations of BNPL apps tend to correlate to their geographic reach and the size of the potential user base. The largest is attributed to Zilch, for example, valued at over US$2bn after receiving US$110m of Series C funding last November[iv], roughly 50 times its most recent gross revenues. Founded in 2018, the direct-to-consumer BNPL specialist is headquartered in London but was last year awarded a lending license for California, the US state with a population of around 39m. Zilch management has also indicated plans to launch across the US this year, followed by the European Union (EU).

Affirm was valued at around US$12bn (US$49 a share) when it IPO’d in January this year. But a subsequent 98% rise in the value of its shares pushed the price out to almost US$24bn (44x its revenue), meaning the San Francisco company has added US$18bn of value in just four months[v]. Swedish fintech Klarna dwarfs them both with a valuation of almost US$46bn (around 38x its most recent annual revenue) after a US$639m funding round led by SoftBank’s Vision Fund 2 last June.[vi] Other BNPL providers with valuations with a price to revenue ratio in the range of 10-35x include Zip, Scalapay, Afterpay, and SplitIt, with Sezzle, OpenPay, LayBuy, and Twisto providing less than 10X according to Flagship.[vii]

Stock markets and company valuations are notoriously fickle, but there is no doubt that more people than ever now use their smartphones to shop and manage their finances rather than use cash, banks, or cards.

[i] Pakistani startup ‘Abhi’ raises $2 million to launch salary advance app for employees, Dawn, 7th June 2021

[ii] Spain’s Payflow, a salary advance startup, banks $9.1m to fuel a super app growth strategy, TechCrunch, 17th January 2022

[iii] Revolut’s new ‘Payday’ feature lets users advance up to half their salary at ANY time: Is it an end-of-the-month lifesaver or a debt trap?, This is Money, 27th August 2021

[iv] BNPL upstart Zilch becomes fastest ever unicorn with $2bn valuation, altfi, 11th November 2022.

[v] In IPO Pop, Affirm Doubles In Value To $24 Billion, Forbes, 13th January 2022

[vi] SoftBank leads $640 million investment in Klarna, valuing buy-now-pay-later firm at $46 billion, CNBC, 10th June 2021

[vii] Infographic: Top BNPL Providers Demonstrate Solid Valuations, Flagship Advisory Partners, 14th January 2022

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