Buy Now Pay Later (BNPL) firms have boomed since the pandemic began. Online use has soared 35% since March, BNPL giant Klarna has become Europe’s most valuable fintech at $11bn, and London rival ClearPay has announced it's expanding to four more continents.
Now Twisto, a BNPL company based in Prague, has secured €16m in new funding, aimed at expanding its services across eastern Europe; an area the company says shows significant promise for BNPL growth.
Twisto, which is currently active in both Poland and the Czech Republic, plans to expand to Romania next. Founded in 2013, 1.6m customers have used the app so far which, like Klarna, allows them to defer payments on goods purchased online.
“We were the first to introduce BNPL to the central and eastern Europe region and we’ve been building the market from the ground up,” explains Michal Šmída, Twisto's CEO and founder tells Sifted.
BNPL accounts for 5% of ecommerce sales in the region today, Šmída says, but that could reach 15% in the next five years, something that was accelerated by the pandemic.
“Eastern markets offer 20-30% year on year e-commerce growth and tech savvy markets such as the Czech Republic and Poland have the highest penetration of contactless payments in physical stores globally.”
The countries were quick to adopt features like Apple Pay and Google Pay, Šmída explains, providing a good foundation for increased adoption of BNPL too.
The competition
Some local banks in the region have tried to enter the sector, Šmída says, but have often struggled because of regulatory restrictions. As such, global fintechs like Revolut are actually the biggest challengers to Twisto in central and eastern Europe.
“Revolut has a huge presence in the region, with Poland and Romania being two of its biggest markets, although they are currently mainly focused on foreign exchange, travel and debit-based services.”
While Twisto now plans to expand further into the east of Europe, as well as outside the EU, it’s ruled out countries like Germany and the UK. Šmída explains these markets are already saturated by international players like Klarna.
As well as geographical expansion, Twisto plans to use its new funds to build up its “pay-in-3” interest free instalment product, which it says is based on rival's success with this models.
Backed by the likes of Finch Capital and ING Bank, Twisto has also said it's open to M&A.
Regulating BNPL
BNPL firms, particularly those operating in the UK, have come under fire in recent months, with politicians calling on governments to regulate the industry for fear people will overcommit themselves to spending through delayed purchase schemes.
But according to Šmída, central and eastern Europe regulate lending more heavily, meaning Twisto's business is built around stringent rules.
“We have strict risk guidelines to follow,” he says. “BNPL lending is heavily regulated in the region with debt-to-income ratios, maximum rate caps and late fees. This is in stark contrast to the UK for example where the discussion around regulation is only just kicking off.”
In December, Klarna chief executive told Sifted: “We’re not perfect, we’re learning,” adding he’d raised questions internally about whether Klarna makes borrowing too easy.
Other new players like the UK's Zilch are trying to address the 'debt issue' by calculating credit lines not just based on loan riskiness, but also on users’ affordability.
Zilch, which raised a $30m round last month, also asks users to pay 25% upfront each time to encourage more responsible spending.
