The buy now, pay later (BNPL) market was once seen as a bulletproof investment, given the meteoric rise of players like Klarna and Afterpay during the pandemic. But increased scrutiny over the business — regulatory and otherwise — has put a damper on the enthusiasm. The U.K. last year announced new policies pertaining to BNPL companies, while the U.S. Consumer Financial Protection Bureau in September signaled it would subject BNPL vendors to stricter oversight.
Facing the headwinds, rather than pull out of BNPL altogether, investors appear to be shifting bets to what they perceive as a safer subcategory of BNPL: business-to-business (B2B) BNPL. The beneficiaries are startups like OatFi, which today emerged from stealth with $8 million in new equity and $50 million in debt for its platform that provides working capital infrastructure for B2B payments platforms.
QED Investors led OatFi’s latest funding round, with participation from Cambrian Ventures, Portage Ventures, Picus Capital, Fin VC, Dash Fund and Lorimer Ventures. Bringing the company’s total raised to $11.25 million, the proceeds will be put toward expanding OatFi’s risk, engineering, customer service and go-to-market teams, according to CEO Mike Barbosa.
“We founded OatFi to better serve small- and medium-sized (SMBs) businesses. Cash flow has always been a problem for small business, dealing with mismatched payment terms with suppliers and customers,” Barbosa, who co-founded OatFi with ex-Disney+ staffer John Jordan, told TechCrunch via email. “We found that the platforms bringing these B2B payments online didn’t want to sacrifice their software-as-a-service multiple by launching a credit product, even though they see the data needed to properly underwrite working capital tools. OatFi was built in response to needs of payment platforms and SMBs.”
Barbosa, who spent five years with Morgan Stanley and Bloomberg and co-founded a climate tech startup before launching OatFi, positions OatFi as a way for B2B payments platforms to launch embedded working capital tools without having to launch a credit business. Through the platform, customers can configure their own user experience that embeds (via API) within their existing tools — including tools for bill pay, credit checks, collections, invoicing and spend management — by essentially building their own BNPL or receivables financing solution.
“While there are other ‘B2B BNPL’ that focus on marketplace or ecommerce platforms, we are the first to provide the end-to-end infrastructure for B2B payment platforms to provide financing on both sides of every B2B transaction,” claimed Barbosa. “Rising interest rates and increased inflation continues to compress SMBs operating cashflow. While the credit quality of SMBs may suffer, the current environment presents a unique opportunity for OatFi and it’s platform partners to support SMBs through working capital tools where not previously available.”
Even assuming OatFi is as competitive as Barbosa claims, however, it’s a tight race for market share in the growing B2B BNPL space. Kontempo recently secured fresh capital for its BNPL product for businesses, as did Billie and Mondu. Other top-raising vendors include B2B Affirm spinout Resolve, Tillit, Vartana and Slope.
OatFi is starting small with five platform partners. But while Barbosa wouldn’t reveal names, he said that OatFi has originated “millions” in volume across B2B payment use cases, including bill pay and invoicing, vertical software-as-a-service and spend management customers.
“The pandemic has accelerated the transition of B2B payments from offline to online. This supports our business model as we are able to better distribute working capital tools to SMBs via our partner platforms experiencing significant growth driven by this shift,” Barbosa added.
New York-based OatFi currently has 15 employees, and the company expects to end the year with around 22.