UK-based buy now, pay later fintech Zilch is considering a secondary share sale, as a wave of fintechs make the same move. The fintech is also currently riding on a high after achieving its first profitable quarter.
CEO Philip Belamant tells Sifted that a secondary share sale would enable the company to clean up its cap table ahead of an IPO — and make a bunch of its employees happy.
“We’d obviously love to bring a bit of liquidity to the team, and then for early investors that want to get out, we wouldn’t want them getting out on IPO,” he says, adding it was a good way to clean up the cap table before a public listing.
Employee share sales, a type of secondaries deal which sees equity-holding employees cash in on their stocks, are in vogue.
In August, Revolut kicked off the secondary hype by securing a $45bn valuation in an employee share sale. Investment platform Moneybox, payments fintech SumUp and UK neobank Monzo are also reportedly pursuing similar transactions.
The regulated BNPL provider
Founded in 2018, Zilch is a buy now, pay later (BNPL) service that offers consumers a virtual card, enabling them to BNPL their shopping wherever Mastercard is accepted. By contrast, fellow BNPL provider Klarna typically requires merchants to integrate its service as a checkout option.
Zilch’s service is also regulated — it obtained a consumer credit licence from the UK's Financial Conduct Authority (FCA) in 2020 — unlike Klarna’s ‘Pay in 3’ and ‘Pay in 30’ days products.
“The interesting thing about the business today is we're the only company at this scale in the market that is regulated,” says Belamant. “We built the product with the regulator.”
That means incoming UK government regulation on BNPL, which will see users undergo affordability checks to prevent unmanageable debt, won’t directly apply to Zilch, he says.
Zilch is also much younger than its rivals — Klarna was founded in 2005, while Australia’s Afterpay and US giant Affirm were founded in 2014 and 2012 respectively.
Belamant argues that its relative youth among the BNPL lenders means it can use emerging technologies like artificial intelligence (AI) to keep hiring in check as it grows — rather than cut existing headcount. (Klarna’s boss Sebastian Siemiatkowski has said advances in AI will enable the company to halve its workforce.)
“We think that the headcount you’re removing due to efficiencies in AI or technology tells the market how behind you were on the implementation of technology,” says Belamant. “In fact, it’s a dead giveaway.”
Zilch currently uses AI to improve credit underwriting, personalise affordability limits, detect fraud and analyse buyer intent.
Building from Zilch
And its strategy appears to be working so far. According to the latest available Companies House filings, Zilch posted revenues of £57.1m for the year ending in March — almost double that of its 2023 turnover of £30m.
The company makes money through multiple income streams, which include charging commissions to merchants on customer sales, earning interchange fees, offering advertising opportunities to retailers so that they can be displayed prominently in the Zilch app as well as small upfront fees for customers for certain purchases.
Zilch also sells premium features related to user purchases — for instance, extra warranty or insurance. It’s also considering adding a subscription product that would be geared to specific customer wants and needs.
“For instance, we have groups of customers who use our ‘pay over three’ [months] product a lot for travel and electronics,” says Belamant. “So we could bundle in product insurance monthly, where you don't have to ask for it each time; it's just whatever you've got is covered.”
Zilch is yet to make a full year in the black, but Belamant says the company hit profitability monthly in July, with margins growing month-on-month.
“In July, we printed our first profit and in August, we doubled that number,” he says, declining to share exact figures. “We printed our first quarter of profit this past quarter and October’s profit was around 6x of July’s.”
But it’s not been all plain sailing. In March this year, Zilch paused operations in the US to focus on its home market, despite having got a lending licence in California and lined up a bank partnership.
Belamant describes its US expansion plans as a very expensive test that Zilch would need to raise hundreds of millions in capital to finance — a tough call in the fintech funding slump. Instead, Zilch decided to focus solely on its UK operations.
“It wasn’t about cost cutting,” he says. “It was actually around the redirection of capital into growth.”
The move to IPO
Zilch’s decision to take a breather in the US doesn’t mean that it won’t consider the country as a possible IPO destination, however. Last week, Sweden’s Klarna made headlines by confidentially filing for an IPO in the US.
It’s unlikely we’ll see Zilch make a similar move in the next year. Belamant says that while the six-year-old UK-based company envisions listing in the next 18-24 months, it’s undecided on where to do so.
“How will the world and this business look in two years?” he says. “It could look very different, so it’s very hard to say whether it would be here or there [the US].”
