In February, technology guru Dave Savage welcomed Zilch’s CEO and founder Philip Belamant to the Tech Talks podcast, where they discussed the latest buy-now-pay-later (BNPL) movements that Zilch has headed. Having successfully disrupted the buy-now-pay-later industry by offering a newfound, safer BNPL solution in 2018, the fintech has rapidly developed its offerings. And Zilch has been particularly prominent in recent media as new Financial Conduct Authority (FCA) regulations mean Zilch is one of the only FCA-regulated BNPL providers in the UK..
These new FCA policies follow serious debt cases that shoppers have fallen into when shopping with BNPL providers that haven’t offered sufficient protection. Zilch stands by the FCA’s new regulations and is keen to set the example for how a customer-centric BNPL provider should model its offerings.
We’ve delved deep into the Tech Talks interview and drawn up an overview of Zilch’s vision for responsible consumerism. There’s plenty to learn here, especially if you’re interested in savvy budgeting and spreading your costs effectively.
Introducing Zilch
Belamant kicked off the interview by introducing Zilch to Tech Talks’ listeners. He explained that although there are many players in the BNPL market, Zilch stands out because it’s a direct-to-consumer provider. This means that while Zilch’s competitors do their business with retailers who, in turn, offer payment plans for shoppers, Zilch prioritises shoppers’ needs and connects with them directly, monitoring their affordability to bypass the need for late fees and other payments. This model has led some customers to compare Zilch to American Express – Zilch has blended all the convenience of the Amex card with the ease of use that BNPL models offer.
When a shopper uses Zilch to make a purchase, they only need to pay 25 percent upfront. They can then pay an additional 25 percent every fortnight, spreading the cost of their purchase over six weeks.
Why Many Shoppers Rate BNPL Models Over Credit Cards
Historically, many people used credit cards and loans to spread costs, but healthy BNPL models take the risk factor out of credit and make shopping safer.
‘BNPL is built on a fixed-sum lending model,’ Belamant said. ‘It’s not a running balance. It’s not a running credit model. If you look at credit cards, the entire business model is based on lending you enough money that you can’t afford to repay on time because they only make their interest in fees on the portion of money you do not repay after the free period.’
‘As a good example, if you have a card from one of the leading UK providers, they give you 45 days interest free. Their objective is to lend you enough money during that time that you do not clear the total balance by the 40-day mark, because that’s where they start to bill you 22.7 percent APR, not only on the money from that day moving forward but, in some cases, retrospectively. That’s their business model. It’s almost built on over-lending. In fact, it’s the complete opposite of BNPL.’
‘In BNPL, the companies are making a fixed fee per transaction from the retailer. So, it’s in their interest for you to pay them back on time every time. Because the longer the money is out the door, the smaller the margin gets on that transaction for the provider because they aren’t charging the customer anything. So, the entire model is based on you repaying on time. That’s why you have this inherent protection built into BNPL products.’
‘What I mean by that is, if you’re late for an instalment, typically BNPL providers freeze you from making further purchases. They’ll send you SMS alerts or you’ll get in-app notifications: you owe us money – we’re going to bill you tomorrow. Why don’t you get those from your credit card provider? Because they want you to be late. In BNPL, the whole model is based on you being early or on time. I think that’s something the market needs to understand. This is the most responsible way for a customer to spread the cost of something. I truly believe that. And the most affordable way.’
How Zilch Attracts Customers
As a relatively new player in the market, Zilch has had to innovate effective ways to attract customers.and there’s no denying the BNPL provider’s shopper incentives have achieved this. Belamant highlighted the fact that most of Zilch’s customers find them on social media, where they can click through to complete an easy signup process, agree to the T&Cs, and gain a full understanding of how the model works. Some BNPL providers don’t offer this clarity and ease of use, but Zilch shoppers are fully aware of how the cash flow management tool works.
As a result, Zilch launched a £10m fund last year to scale its popular BNPL solution and accommodate rapidly growing demand. On that note, Zilch has now reached over 500,000 users – a huge milestone for the company.
How Shopping With Zilch Works
Belamant also explained how Zilch has made its model particularly accessible. Zilch is the only BNPL provider to have partnered with MasterCard, meaning shoppers can split their bills with any retailer that accepts MasterCard payments – which is most of them. Shoppers receive a virtual Zilch MasterCard when they sign up, and they can save this to their browser, Apple Pay, Samsung Pay, and/or Google Pay to make checking out easier than ever.
Now the government has started to roll back COVID-19 measures, Zilch looks forward to launching its brand-new tap-to-pay overtime product, which will also allow shoppers to use their Zilch MasterCards in store, too.
The Only BNPL Provider Regulated by the FCA
As mentioned earlier, Zilch’s efforts to help shoppers avoid debt-related issues hit headlines when the FCA revamped its regulations earlier this year – leaving Zilch one of the the only BNPL provider that complies with new rules. During the interview, Belamant explained that Zilch worked closely with the FCA for over a year, completing their Regulatory Sandbox Process, to become certified. The FCA praised Zilch’s rejection of compound interest and low initial lending limits.
‘We spent 12 months in that process with the FCA, figuring out how we can build this model so we don’t just take creditworthiness into account, but affordability,’ Belamant said. ‘That’s what the whole conversation today is centred on. We’re looking at how we can assist firms in changing how they assess the affordability of the customer. We may even publish a white paper explaining how we do things with the combination of our open banking and self-credit-check technology.’
‘Zilch is one of the first BNPL providers in the UK that is regulated by the FCA,’ he added. ‘Most of the other providers are operating under an exemption. And we could have chosen to go the same route with our business. But we said: if we’re trying to bring the most value to the customer, how can we ensure they have a good understanding of what the product is? This is a debt instrument; it will create a liability that you need to repay. The customer should understand that. And as long as the customer understands well, I think this will be one of the most accepted – and should be one of the most popular – ways of paying over time, mainly because it is, without doubt, the most affordable way for a customer to do so.’
Helping Shoppers Avoid Financial Difficulty
Belamant explained that Zilch is the ideal platform for savvy shoppers – the kind who want to avoid overpaying for travel, accommodation, meals, and even their everyday shopping. While some credit cards charge predatory rates and fees, Zilch offers transparency that appeals to shoppers who simply want to spread costs, especially Millennials and Generation Z customers.
‘When we talk about this with people in the industry, I’ll often sit in a meeting and say to people around the table: “Assume I have £1,000 outstanding at the end of a 45-day period on my branded charge card. Can you please tell me after 10 days what the fees equate to?” Even the people who issue the cards can’t tell me the answer,’ Belamant said.
‘And our customers certainly aren’t up for it. They don’t want this lack of transparency in how they transact. And that’s why the BNPL industry has done a phenomenal job in bringing very low costs or completely free credit to people who otherwise would have been excluded, mostly because of the old-school way of assessing creditworthiness through the old credit checks and bureaus, which still today serve a great purpose. Unfortunately, they don’t tell us much about the affordability of a young customer who doesn’t have a credit history.’
More Insights From Philip Belamant
This is just a glimpse of Zilch’s success to date and its plans to modernise responsible consumerism in the BNPL market. To learn more about how Belamant and the innovative fintech is making its mark on the BNPL industry, listen to the complete Tech Talks interview.
About Zilch
As the first BNPL provider to integrate open banking data into customer affordability assessments, Zilch is redefining what it means to offer a real solution in the buy-now-pay-later industry. The BNPL leader dedicates itself to protecting shoppers and, unlike many competitors, refuses to catch shoppers out with hidden fees and late payments. Instead, Zilch runs automatic assessments every time a shopper goes to make a purchase. This safer way of shopping attracts over 70,000 customers to Zilch every month.
To sign up for a Zilch account, you just need your debit card, phone number, email address, and postal address.
