With the motto “ADDI Now, PIX Later” – a pun on the BNPL (Buy Now, Pay Later) payment method and PIX (the Brazilian instant payment system) – Colombia-based ADDI has just got a $75 million round led by Greycroft. The new funding comes just three months after raising $65 million in debt and equity. The resources will be used to scale in Brazil and Colombia; by 2022, the fintech hopes to reach Mexico too.
GGV Capital, Citius Capital, and Intersection Growth Partners also participated in the round, in addition to existing investors Andreessen Horowitz, Citius VC, Endeavor Catalyst, Foundation Capital, Monashees, and Quona Capital. The investments also featured Union Square’s Opportunity Fund, which led the Series B in May.
Founded in 2018 by Daniel Vallejo, Santiago Suarez, and Elmer Ortega, ADDI offers a BNPL solution for those who do not have a credit card or are not able to make payments with that method. The fintech company has designed a B2B2C product: it partners with online and physical stores, which then offer ADDI as a payment method to their customers. When a purchase is paid for with ADDI’s solution, the partner store receives the sales value from the fintech in up to a week, while the customer can install the debt in up to three interest-free installments.
In an interview with LABS, Vallejo said that the fintech aims to “redefine commerce in Latin America“, adding value to both parties in the deal. According to him, ADDI’s solution generates an increase in the average ticket and online shopping conversions of up to three times.
“Our goal is to make the whole shopping process simpler, to increase our partners’ sales, and to build loyalty among the final customer. In Brazil, ADDI already accounts for more than 50% of the sales of some of our partners. For the client, paying with ADDI does not generate costs with taxes or interest, as is usual with credit cards, for example,” he explained.
In Brazil for only six months (the fintech landed here in March 2021), ADDI is available in e-commerce and physical stores of more than 100 retail partners and says it has already processed about 20,000 transactions at an average ticket of BRL 350.
Brazil is considered the main market for fintech. With an eye on this business potential, ADDI started offering end users interest-free payment via PIX, to replace the traditional bank slip, and plans to improve the BNPL offer by launching an app soon. The company expects to reach 400 partner merchants by the end of this year and hit the BRL 1 billion transacted mark by 2022.
ADDI does not disclose the operation’s revenue or default rate – the fintech pays itself from a commission on each sale made through the platform –, but according to Vallejo, the startup is focused on scaling the operation and, today, prioritizes the retention of partners and users and long-term profitability.
“We have a long-term profitability vision based on loyalty and recurrence. When we think about profitability, we don’t just think about the first purchase. We want clients to come back and buy with us,” he said.
BNPL, a new look for the installment plan
ADDI bet on the BNPL trend and got it right. According to CB Insights, the global BNPL industry is projected to grow 10 to 15 times its current volume, topping $1 trillion in annual gross merchandise volume by 2025.
As LABS has shown, unlike a credit card or a line of credit issued by a bank, BNPL lets consumers pay for purchases via short-term loans that most often have no interest fees for shoppers.
These microloans are approved at the time of purchase, and there are two primary ways of borrowing. The first is a point-of-sale loan, in which BNPL provider partners with merchants to offer financing at checkout. The other is an installment plan that lets people buy online and pay for their items in a predetermined number of installments.
Both involve a credit validation step that is typically managed by the BNPL service provider. The loans are frequently interest-free for customers if they are paid on time. For other transactions, an interest charge may be applied up front.
BNPL service providers make their money on the transaction fees charged to merchants, but in return, merchants benefit from reaching more customers, increased cart conversions, and higher sales volumes. BNPL providers also validate the customer’s ability to pay through their own soft credit check or underwriting process, taking most of the risk of non-payments and fraud of the merchant’s shoulders.