Contempo, a startup offering buy-now, pay-later (BNPL) and interest-free installment plans for business-to-business (B2B) customers, today announced that it has raised a seed round of $30 million in an equity mix (6 .5 million dollars) and debt ($25 million). CEO and co-founder Matthew Meehan tells TechCrunch that the new money will be used to hire staff, grow Kontempo’s sales network and further develop the technology underlying its platform.
While BNPL has gotten a lot of play in the consumer market, with giants like Klarna, Afterpay and Affirm doing their best to stop it, alternative installment plans have been slower to make inroads into the traditionally conservative enterprise. Although most B2B purchases and supplies are spread over time (eg net 30-day terms), the deals are not structured in the way that BNPL’s consumer-style plans typically are. High processing fees are often involved, with 35% of firms at Ardent Partners research considering that it costs $8 to process a payment from one vendor. And delays are common. Separately report found that it takes an average of 30 days to make a payment and that 47% of suppliers receive a delay for their products or services.
Meehan says he and Kontempo’s other co-founders, Antonia Marino and Kwesi Steele, saw an opportunity to address these challenges in one platform.
“Three important insights gleaned from our previous work formed the basis of the rationale for launching Kontempo,” Meehan told TechCrunch in an email interview. “Most companies selling to SMEs need to offer point of sale financing or ‘net terms’ to be competitive. Also, there are currently no viable options to outsource this function. Finally, fast and flexible payment terms at the point of sale result in higher average order values and higher total sales — similar to BNPL in the consumer segment.”
Meehan was previously an analyst at Morgan Stanley and an associate at Lehman Brothers before becoming vice president of Latin American trading at Merrill Lynch. Marino was a senior regional operations manager at Uber in Mexico City, while Steele was a senior sales manager at Google.
Kontempo allows sales teams to approve credit for offline or online purchases with net terms of 30, 60 or 90 days. Alternatively or in addition, businesses can use Kontempo’s API to implement a BNPL option at checkout that does not require credit card or bank account information.
To mitigate risk, Meehan says, Kontempo captures data from trading partners to feed an algorithm that determines creditworthiness. The algorithm, which takes into account a number of factors that Meehan declined to disclose, allows Kontempo to reach a wider segment of small and medium-sized enterprises (SMEs) that are typically rejected for credit.
“Kontempo sees an opportunity with its BNPL product to increase the use of digital payments in the B2B space, to increase sales for both online and offline distributors and SME suppliers, and for the first time in building critical payment infrastructure for still small , but fast-growing B2B e-commerce market,” said Meehan. “Kontempo is a pioneer in this space, where vendors themselves are the primary providers of point-of-sale financing for SMEs. We’ve created the technology that allows vendors to outsource this function.”
The question is whether there is a strong appetite in B2B for the products that Kontempo sells. To some extent, invoice factoring platforms solve the problem that Kontempo claims to solve – guaranteeing payment – by providing a significant cash advance to suppliers. In invoice factoring, the supplier sells its unpaid invoices to the factoring company (for a fee) and receives an advance in return (usually around 90%), while the remaining value is paid by the factoring company to the supplier after the buyer pays an invoice (plus a fee) to the factoring company the company.
But Meehan argues that factoring does not provide the “immediate point-of-sale financing” that BNPL can. “They’re a post-transaction liquidity solution,” he said, referring to factoring platforms. “As for credit cards, they can solve similar pain points, but are typically not used by SMEs to finance inventory purchases because credit limits are low and interest rates are so high.”
The expansion by Kontempo’s competitors suggests this is true. Funding Circle, a fintech lender for SMEs, has started offering a BNPL program called FlexiPay to business customers after a successful pilot project. Based in Berlin Billy, another B2B supplier to BNPL, is valued at over half a billion dollars and recently secured funding from Klarna and Chinese tech giant Tencent. Smaller players in the sector with significant financial circles are involved PlayerHokodo, Mondu and tranche.
In fact, while consumer-focused startups BNPL have seen theirs ratings are down and stock prices plummet in recent months investors have been largely bullish of B2B BNPL as a product category — excluding the risk of insolvency of the payer. Like a recent CNBC piece notesBNPL’s services are proving particularly popular among SMEs, which are feeling the pinch of rising inflation.
As for distribution of paper checks in B2B, Meehan admits it’s a tough problem to overcome — along with rising interest rates that make the terms of certain payment plans less attractive. But on the first point, Meehan notes that the pandemic has spurred a migration to e-commerce models for many B2B industries.
“Kontempo has signed contracts with 26 commercial partners in Mexico. These 26 trading partners represent access to over 100,000 small and medium-sized enterprise ‘buyers’ or end users of our product,” Meehan said when asked about Kontempo’s early market appeal and near-term growth prospects. “The company is on track to process approximately $1 million in payment volume each month through the end of 2022. … We have more than three years of runway.”
Kontempo plans to “at least” double its 11-person workforce by the end of the year, Meehan says. To date, the company has raised $32.5 million in venture capital. Portage led the seed round with participation from Scor P&C Ventures, Upper90 (which also provided the credit facility), Ignia, Tectonic Ventures and Asymmetric Capital Partners.