Klarna, the OG giant of the buy now, pay later space is seeking a new round of funding at a dramatic reduction in its admittedly sky-high valuation. Yet times are not uniformly tough in BNPL, as today’s news from Klarna rival Zilch would suggest.

Zilch announced today that it has raised $50 million to tack onto its recent $110 million Series C round. The round, originally announced in November, was designed to fund UK-based Zilch’s U.S. expansion.

There is an interesting contrast emerging. It’s between upstart BNPLs like Zilch, or B2B players like Playter, which raised $55 million last week, appearing to raise money with ease. And then we see established BNPLs like Affirm taking a beating in the stock market. And Klarna, as noted, is seeing its valuation slashed.

The contrast is pretty clear in Playter’s case. As a B2B BNPL, Playter can make a good case that BNPL for businesses is a different animal. Businesses can use BNPL as an effective tool for managing cash flow on things like inventory. It’s not about convincing a GenZ consumer to spend 40% more on a shopping cart because they won’t have to pay the full bill right away.

Not Tied to Merchants

In Zilch’s case, there is a key distinction from its competitors that may help explain why investors are still bullish. And notably, are not putting the squeeze on the company’s reported $2 billion valuation.

Most of the big BNPL players operate through retailer partnerships. Zilch on the other hand is a direct-to-consumer model. Zilch works with any merchant that accepts Mastercard. Customers can pay on debit (with up to 2% instant cashback and rewards) or credit (pay-in-4) for no interest or late fees, anywhere.

It’s a big distinction that Zilch doesn’t have to chase merchant deals, which many argue is a race to the bottom with merchants holding most of the cards in negotiations.

Philip Belamant founded Zilch in 2018 and launched the product in 2019. He continues to defend BNPL as an attractive and responsible choice for consumers.

“In a world of rising interest rates and inflation, it has never been more important for customers to have access to a payment product that they can depend on for savings, deals, and cash flow management with no interest or late fees of any kind,” Bellament said. “Open Banking data shows how customers of all ages are migrating away from traditional high-cost credit cards or overdrafts in favor of services like Zilch — saving them millions.”

Interest Rate Impact

The rising interest rates argument is interesting. One key feature of many (not all) BNPL services is that they charge no interest. In this model, the BNPL platform takes a fee from the merchant. Zilch makes money through a merchant affiliate ]commission and the interchange with Mastercard.

As interest rates rise, this argument becomes more interesting. Rising rates might also put pressure on BNPLs who often rely on debt financing to fund their transactions.

Another interesting move Zilch made was to partner with credit bureau Experian to bring more transparency to BNPL. Without reporting to credit bureaus, it’s possible for consumers to overextend themselves on multiple BNPL accounts across different platforms. Addressing this bug in the system could help stave off BNPL’s rising default rates. Not to mention the increasingly negative PR that trend has attracted to the industry.