British Klarna rival valued at £1.65bn as it wins backing of eBay

A British rival to Swedish buy-now-pay-later (BNPL) giant Klarna has secured investment from eBay in a deal that valued it at $2bn (£1.65bn).

Zilch, a UK payments company founded in 2018, is understood to have received a low single digit million equity investment from eBay Ventures. The company declined to comment.

The business already has the backing of Goldman Sachs and received £20m earlier this year from current investors, maintaining its multibillion dollar valuation despite a wider fall in fintech stocks.

Zilch allows customers to delay payments, splitting them into four instalments over six weeks without charging interest. Customers can also pay upfront. If customers choose to defer payments, Zilch charges a fee of up to £1.50.

In some cases, Zilch will charge fees if the retailer is not a partner of the company. Brands also advertise through Zilch’s app.

Revenues for 2023 almost tripled, from £10.9m last year to £30m in the 12 months to March.

However, the company still reported a loss before tax of £72.1m, down slightly from £79.3m a year earlier.

Zilch claims to have over 3.3 million registered users.

More than a quarter of people in the UK now use BNPL services, according to the Financial Conduct Authority (FCA).

The City regulator found around 14m people, or 27pc of Britain’s adults, had used the form of credit in the six months to January.

That is up from 17pc in its previous survey, which covered the half year to May 2022.

The increase has coincided with the cost of living crisis and the FCA said people who use BNPL are often more likely to be in financial difficulty than those who do not.

Around half of people who used BNPL 10 times or more in the previous 12 months also have high-cost loans, the FCA found, while the same share have a growing amount of debt on credit products. One quarter have missed a bill or repayment in at least three of the past six months, it found.

Alongside the data, the FCA said it had reached a deal with PayPal and QVC to change their BNPL contracts.

The FCA’s Sheldon Mills said: “When used appropriately, the product provides valuable benefits, but we want to ensure that consumers, particularly those in vulnerable circumstances, have adequate protections and are given sufficient information.”

Despite the rapid rise in usage, the BNPL sector has come under pressure as venture capital funding has dried up and interest rates have risen.

Klarna, the most established player in the fast-growing sector, was forced to trim its valuation by more than 85pc last year from $45.6bn to $6.7bn amid a tighter funding market.

The sector is also facing the prospect of new regulation amid concerns BNPL offers for fast-fashion are encouraging consumers to spend beyond their means, although a widely expected crackdown from the Treasury was delayed over the summer.

Labour has accused the Government of dragging its feet over the rules. 

City minister Andrew Griffiths said in September the Government was still “considering stakeholder feedback”.

Philip Belamant, Zilch chief executive, said: “In Zilch’s financial year to March 2023, sales doubled, revenue tripled and gross profit increased fivefold to over £17m.

“Today, millions of adults trust Zilch daily to reduce their bills, build their credit and keep them protected wherever they choose to pay.

“With a strong balance sheet, Zilch is in growth mode and on course to hit bottom-line profitability in our core business in the near future.”

Zilch has been weighing up options for a future initial public offering, considering floating in either New York or London.

In August, Mr Belamant said he had seen “encouraging” signs from the London Stock Exchange in attracting new technology listings.