Scalapay raises $155M at a $700M valuation as buy-now, pay-later services continue to boom

Scalapay, a buy-now, pay-later (BNPL) technology provider that has made significant headway with retailers and consumers in Europe and in categories like fashion, has closed a round of funding that it will be using to fuel its expansion ambitions. The startup has raised $155 million at a $700 million valuation.

Tiger Global is leading this round, with new backers Baleen Capital and Woodson Capital also participating, alongside Fasanara Capital and Ithaca Investments, which had backed Scalapay in its previous $48 million round earlier this year. (Scalapay has now raised $203 million in total.)

This is a sizable round of funding given Scalapay's age: the company is only two years old and this is a Series A. Ramping up in this way underscores just how hot the BNPL market is right now, and also how the startup has been faring within that.

The company's service is based around being tightly integrated with online retailers' check-out process and offering users an interest-free, three-installment way to pay for anything they purchase. It now works with 3,000 merchants in Europe - specifically Italy, France, Germany, Spain, Portugal, Finland, Belgium, Netherlands and Austria - and it has yet to move into huge markets like the U.S. and U.K.

When we launched, we saw between 5% and 10% of all transactions for our customers go through Scalapay," CEO Simone Mancini, who co-founded the company with Johnny Mitrevski, said in an interview. Now we are at 15%-20% and its growing. In luxury fashion we're accounting for 30%-50% of all transactions, and in some cases more than half. We want to be the thing that makes purchasing pleasurable again."

Pleasurable, and more likely to happen: while shopping cart abandonment continues to be an issue for all online retailers, Scalapay claims that its existence has increased conversions by 11%, and gives consumers the confidence to spend more, typically 48% more per shopper.

The growth of buy-now, pay-later services has been one of big hallmarks of the pandemic-era e-commerce market. Although the option to pay for items in installments had been around for years before Covid-19 - indeed, layaway and other delayed payment services were big even before e-commerce was a thing - usage of BNPL saw a new boost of attention on the back of way more people using online channels to shop, and - given the uncertainties of the economy - way more of them needing some financial help ultimately to make purchases.

That was complemented too by a new and more sophisticated approach: the leading BNPL providers are bringing together a much more ambitious big-data play, leveraging wider risk analysis and a much more creative and complete picture of a person and his/her finances in order to better understand what to expect out of any transaction. The algorithms and how they direct the course of transactions have become as important as the accessibility of the services themselves.

All of this has led to a huge rush of big BNPL companies getting even bigger. Klarna, which has long been seen as the most valuable startup in Europe (in terms of paper valuation) raised money at a valuation of nearly $46 billion in June. Affirm went public at the start of the year and is currently valued at aorund $23 billion. PayPal re-upped its own ambitions in the market with an Asian kicker just this week: it acquired Paidy in Japan for nearly $3 billion. And of course Square has waded into the space in a big way with its $29 billion acquisition of Afterpay in June.

And that's before you consider the many smaller BNPL companies that have raised and are raising money. They include Zilch, which is now valued at over $500 million; and Resolve, a spinout from Affirm, which has raised $60 million.

In that context, Scalapay's $700 million valuation seems modest - maybe even a little like a bargain? You may not be surprised that this latest fundraising happened on the heels of the startup actually getting approached to be acquired, not by one but by two different companies, which were interested in the technology, but also the fact that Scalapay had made significant headway into specific markets - geographically, in Europe; and also in terms of product categories, specifically fashion - where they are keen to grow.

Mancini declined to say which companies except to note they were among the biggest of the lot. (Just my inference, but maybe the acquisition pace of some of the bigger players gives a clue as to whom it might have been?) In any case, Scalapay said no, but the chatter got other things moving, and that is how Tiger Global came into the picture.

Big investor pockets could prove to be a key part of how any of these companies fare going forward: relationship building and expanding your own pool of talent will be key for growing, both areas where having the right contacts and the right resources to meet new demands will come in handy.

Scalapay has quickly become an important player in European payments and the BNPL sector," said Alex Cook, Partner, Tiger Global, in a statement. We are impressed by their product development pipeline and strong focus on merchant success. We are excited to support Scalapay in the next phase of its growth."

Interestingly the company said it plans to stay very focused on improving the process of BNPL rather than diversify into other areas like fintech (areas where Affirm and Klarna are doing a lot); or the wider area of payments (an obvious move for Afterpay and Square).

While the likes of Klarna and Afterpay have launched deposit accounts and moved further into the banking space, Scalapay's exciting roadmap is laser focused on helping merchants with new customer experiences that increase conversion. They're leveraging BNPL in an entirely new way," added Francesco Filia, CEO of Fasanara Capital.