Philip Belamant is the Co-Founder and CEO of Zilch, a UK-headquartered payments technology company that uniquely combines payments – both credit and debit – and commerce on a single direct-to-consumer platform.
Belamant recently led Zilch in extending its Series C by securing an additional $50mn, taking the total raised for this funding round to $160m. Crucially, the fintech has also maintained the same $2bn valuation as it achieved late last year in the initial Series C (which then made it Europe’s fastest ever tech company to reach double-unicorn status), bucking the current trend of falling valuations in the fintech space.
We caught up with Philip Belamant to find out how he's achieved resilience in the current economic climate - and what fintechs can do to improve their stability.
In light of the current financial instability, how have consumer financial services been affected?
Following the news the Bank of England will likely have to raise interest rates further from the current 14-year high to tackle inflationary pressures, it’s fair to say the consumer financial services industry - as is the case for every UK consumer industry and business - is facing the heat of surging interest rates, rocketing inflation and a potential recession.
It’s simpler to look at the effects of these changing market conditions on the sector through the lens of supply and demand.
In the case of demand, the equation has changed. As money becomes tighter and consumers seek to tighten their belts, there are naturally extra incentives for people to source products that help them stretch their paychecks as far as possible, protect their savings and manage their cash flow. In this case, we are going to see a groundswell in consumers habitually using true customer-centric services such as Zilch. Namely, services that offer both ubiquity and clear outcomes as a customer transacts' instant monetary rewards when they spend and the option to manage their personal or family cash flows by spreading payments and cost of goods over time for 0% interest.
In terms of the supply side, consumer financial services providers are undoubtedly entering a tough period. The demand for services will be increased, and underlying cost pressures are going to mean that margins are squeezed. Companies will come under pressure from their investors to show that they aren’t just able to acquire customers during good times but can also offer their products and services in an evidently sustainable and profitable way for both the short and long term. A business model that is also able to deliver similar high-growth unit economics was seen up to the second half of 2021 when global investor appetite was focused on buying demonstrable growth stories. If your unit economics were either upside down or close to it, the next 12 months will be tough.
How do you see the BNPL market evolving in all this?
Our perspective at Zilch is that the challenging economic climate is going to speed up the pre-existing divergence of the market between what is known as “BNPL 1.0” and “BNPL 2.0”.
“BNPL 1.0” providers (direct to merchant) offer point-of-sale finance via checkout buttons on online storefronts, meaning they work for the merchant, not the consumer. This is an already highly commoditized, low-margin area, and today it's an intensely competitive market space to operate. Further, with the economic winter upon us, it is now leading to M&A activity as players seek to manage user economics that will naturally find it difficult to survive a global cost of living crisis. A number of these ‘buttons operators’ are already folding in various geographies (US, UK, Germany, etc.) With privacy switched on by the likes of Apple, costing SMA’s nearly $20 billion to date, it is these businesses and their models that will experience significant pressures as merchants seek to cut their spending on ‘payment processing’ and instead seek more intelligent outcomes to advertise and access large customer pools directly. It’s because BNPL 1.0 firms do not possess a direct relationship with the consumer that they are exposed to more challenging market dynamics that make it difficult to achieve profitability on a net transaction margin basis.
However, for BNPL 2.0 providers (direct to customer) - companies such as Zilch and now Apple - the consumers are their customers, not the merchants. At Zilch, for example, we’ve created a brand that’s loved, 100% originated and owns its relationship with customers directly through introducing a synchronised advertising and data model; merchants now compete with one another to appear on our app and attract our customers - an incentive that will only increase if there is a fall in consumer spending - merchants don’t like slowdowns, and this is where the evolution of payments helps them in ways they’ve only ever previously experienced with the likes of platforms like Amazon and credit providers like Amex. Zilch is already net transaction margin positive across our product offering, and we continue to scale our customer base. Processing higher volumes of both debit and credit payments with a technology mix that ultimately allows Zilch to give its customers a personalised limit and ensure it only lends its customers what they can afford to repay. This is a demonstration of a materially different business model from BNPL 1.0 providers, with one that completely upends the sector and prioritises customers - a clear departure from BNPL and customer value not seen in payments for the last decade.
Will technology be instrumental in driving growth in the sector?
As with almost every sector, technology has become an important part of how financial services companies create and provide products and services that help customers engage with what they offer faster and more efficiently. This trend isn’t slowing down, and those that fail to innovate and utilise digital solutions are going to be left behind.
In today’s world, people want immediate access to their bank accounts, make payments and utilise services from their phones easily, quickly, and safely. Zilch is a customer-first platform and, as such, offers a virtual Mastercard and has built a best-in-class technology platform that enables users to pay for anything, anywhere, from their phones - something they are doing in surging numbers. For example, today, we’re seeing some of our mature customer cohorts using Zilch more than 10 times a day - that’s more than some people use their traditional payment card or the likes of Uber, Deliveroo or even Amazon.
Akin to what Tesla did to the Auto market, as a market-first vertically integrated payments service, not only do we use live mobile technology to ensure our customers receive the best possible experience, but we also use artificial intelligence and big-data analysis to power our affordability checks, making sure that we can continue bringing the most empowering value to our customers sustainably and transparently.
What keeps us up at night is the drive to change people's lives. Always ensuring that we’re leading innovation and taking advantage of technological change to give our customers access to the very best possible way to pay, deals, and service in the market.
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