Dive Brief:

• Amid increasing investor interest in buy now-pay later services, BNPL provider ChargeAfter raised $44 million in a new round of funding, the company announced in a press release today.
• Meidad Sharon, CEO and founder of ChargeAfter, said in a statement that the funding would enable the company to partner with more lenders and merchant networks seeking to white label their own BNPL option. The New York-based company aims to onboard "thousands of additional retailers" to service millions of consumers worldwide, Sharon said in the release.
• The Israeli investment firm The Phoenix led the funding round, with Citi Ventures, Banco Bradesco, Mitsubishi UFJ Financial Group and other current investors participating. The Series B round funding brings the total amount raised to $60 million, per the press release.

Dive Insight:

ChargeAfter’s new funding comes as buy now-pay later services have attracted significant venture capital funding in the past few years. In 2020, BNPL firms raised $1.5 billion, a 42% increase compared to 2019, according to research from CB Insights.

Investors appear to be capitalizing on the exponential growth of the BNPL market. The Worldpay division of Fidelity National Information Services, better known as FIS, predicts that BNPL spending will comprise $438 billion (5.3%) worth of international online transaction value by 2025, up from $157 billion (2.9%) last year. Another 2021 report, this one from Juniper Research, predicts that consumers will spend $995 billion via BNPL services by 2026.

"While BNPL has exploded in popularity in recent years, the marketplace often gives consumers limited options and up to a 70% decline rate," Sharon said in a statement. "Investor interest in ChargeAfter is a testament to the growing need for a network-driven financing platform made for merchants, banks, and financial institutions, as the industry rapidly shifts from a single lender, low-approval reality to a multi-lender experience where responsible lending and approvals rates upwards of 85% or more are the new norm."

Among the lenders providing financing for the platform are Ally, Synchrony, Wells Fargo, Progressive, Snap, Zip and Visa, a spokesperson for ChargeAfter confirmed to Payments Dive.

Card giant Visa has also invested in ChargeAfter and has a partnership with it. In fact, ChargeAfter is acting as a point-of-sale gateway in Visa's own efforts to develop a BNPL offering, called Visa Installments.

"ChargeAfter is a leading POS financing gateway that connects merchants with lenders, offering instant, approved and hyper-personalized consumer financing options to customers from multiple lenders with up to 85% approval rates – live on the merchants website or in-store," Visa said in web post. "ChargeAfter multi-lender gateway provides merchants with every consumer financing product in a single platform."

As ChargeAfter raises money to support its growth, the company faces competition from other payments providers and white label BNPL firms looking to create or distribute similar technology. Last June, Certegy, an ACH payments and risk management firm, unveiled its white-label BNPL service, enabling companies to place their branding on the installment payment offering. Last September, Capital One Bank piloted its own BNPL service after barring customers from using similar tools from other installment payment providers.

But as startups and incumbent payments providers compete for BNPL customers, analysts and researchers are sounding the alarm on the risks associated with installment payment transactions. Last August, Fitch analysts said that BNPL customers who divide even small purchases into installment plans might have little to no buffer in case of financial hardships. 

With consumers increasingly using BNPL services and analysts pointing out potential risks, regulators have also begun to pay closer attention to the emerging industry. The Consumer Financial Protection Bureau announced late last year that it is seeking information regarding the risks and rewards of BNPL, asking providers Affirm, Afterpay, Klarna, PayPal and Zip to respond to requests. The regulator called for the BNPL players to deliver the requested information by March 1, and has declined to comment on the status of its inquiry.

Across the pond, British regulators are also increasing oversight of the financing tool. And, three British economists studying the trend found that 19.5% of U.K. credit cards were used to make purchases via BNPL platforms, a pattern they say could send consumers into a "debt spiral." Meanwhile, the rise in popularity of BNPL services has also attracted online fraudsters.