Fintech firm Improve is now getting in, pays later with short-term installment loans

Renaud Laplanche, CEO of Upgrade, speaks at a conference in Brooklyn, New York in 2018.

Alex Flynn | Bloomberg via Getty Images

The US fintech start-up upgrade is intended to enter the increasingly crowded market for “buy now, pay later”.

Upgrade, founded in 2016 by former LendingClub boss Renaud Laplanche, is a digital banking start-up that offers payment cards along with personal credit lines.

Unlike a credit card, which allows consumers to change their balance, Upgrade takes all of the purchases someone makes in a month and creates an installment plan to pay off the debt. The payment plans are usually long-term, range from six to 36 months, and charge a fixed interest rate.

Now Upgrade plans to launch a buy now, pay later style product that will allow users to pay off their debts in four months without interest. The company expects to roll out the new service in the coming months, Laplanche told CNBC.

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

Buy Now, Pay Later, or BNPL has grown into a $ 100 billion industry thanks largely to the coronavirus pandemic that accelerated the growth of online shopping.

BNPL services allow buyers to spread the cost of their purchases over three or four months. Instead of paying fees to consumers, BNPL companies make their money by collecting a small fee from merchants on every transaction.

Upgrade’s products differ from those offered by companies such as Klarna, Affirm and Afterpay. Rather than adding a checkout option on merchants’ websites, Upgrade aggregates a user’s card purchases and bills them for the amount they owe over a four-month period.

“What we like about embedding the product in a card is the wider adoption,” Laplanche told CNBC. “BNPL often relies on partnerships with dealers.”

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

Prior to founding Upgrade, Laplanche helped develop LendingClub into the world’s largest peer-to-peer lending platform, connecting investors with borrowers through its marketplace. However, he was deposed in 2016 due to irregularities in credit practice and Laplanche’s alleged failure to disclose a personal investment.

Last year, LendingClub closed its peer-to-peer lending platform and signaled a foray into banking with the takeover of US lender Radius.

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

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

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

Fintechs get into BNPL

Upgrade isn’t the only fintech jumping on the BNPL bandwagon. Fast, a start-up backed by payment giant Stripe, plans to offer BNPL as a payment method through its platform. The company, which enables users to purchase items with one click from a number of websites, plans 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 number of consumers want to use it at a certain percentage of the time,” said Holland. “For me, it’s just one way of addressing a larger part of our dealers’ wallets.”

In the UK, digital bank Monzo has started 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% interest for six to twelve months. The competitor Revolut is also planning to introduce a BNPL function.

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

However, the BNPL sector has recently come under intense scrutiny. The UK government plans to impose stricter regulatory controls on the fast-growing industry amid fears that services like Klarna are encouraging buyers to spend more than they can afford. The UK Treasury Department is expected to launch a consultation on the reforms next month.

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