The Consumerization of Short-Term Lending Solutions: BNPL in B2B


This article was written by Louis Wapler. The original article was published by Edgar, Dunn & Company. You can find the article here.

The Consumerization of Short-Term Lending Solutions: BNPL in B2B

The potential of Business-to-Business (B2B) Buy Now, Pay Later (BNPL) will go beyond the B2B ecommerce ecosystems. B2B BNPL solutions can integrate with Accounts Receivable (AR) solutions to facilitate payment notifications that include the option of utilising BNPL. This could be an easy win for B2B BNPL to increase market reach. Such initiatives can be embedded in procurement or supply chain systems. There is a plethora of opportunities for B2B BNPL providers to investigate and untap new segments.

EDC forecasts global transactions between corporates to reach USD 113 trillion in 2023. The World Trade Organisation estimates that up to 80% of global trade between organisations relies on trade credit. The Net Present Value of trade credit is huge, and this is where the B2B BNPL opportunity exists.

Who is seizing the opportunity?

Today, B2B BNPL fintech companies such as Hokodo, Billie, Mondu, Scalapay or Playter are growing fast and are market leaders in the European ecosystem. German based Billie raised $100 Million in a series C in late 2021Mondu has a cumulative financing of just below $90 Million in 2023 and Hokodo enjoyed a series B extension from Citi in April 2023 leading to more than $55 Million of cumulated funding. Investments are pouring in, and the market space is relatively untapped and characterized by little to no competition.

Why is B2B BNPL well suited for the B2B e-commerce space?

Buyers can now connect to new suppliers in one click. The digital transformation of the B2B sector has led to an increased likelihood for businesses to have a higher percentage of first-time clients in their portfolio. The internet has simplified the previously intricate and time-consuming sourcing and due diligence processes. Clients now have access to a wealth of information that enables them to discover BNBL propositions, and B2B digital platforms, such as online marketplaces, are becoming increasingly prevalent for businesses to trade and gain access to credit. According to projections by Gartner, the volume of B2B transactions conducted through digital channels will increase by 80% between 2022 and 2025

Trade credit but not as we know it

Trade credit is a free short-term lending solution. It is a business agreement where a seller allows a buyer to defer the payment for the goods or services purchased. Trade credit timeframes are often not enough for buyers, as maintaining positive cash levels is paramount for many businesses. This is where short-term lending often plays a vital role. Corporate payment cards, business credit lines, commercial credit, secured loans, and factoring are the usual trade credit instruments that allow organisations to hold on to their cash while paying their suppliers. Today, the new entrant that is propagating from the B2C space into the B2B space is BNPL. Yet, it is nothing more than another form of trade credit.

B2B BNPL is not a game-changing lending solution. It is simply an alternative approach – that is more convenient and more accessible – for businesses to spread the cost of their purchases over a period, at no extra cost. The revenue model and ability of B2B BNPL to seamlessly integrate with a variety of online business ecosystems is something that no other short-term lending option can provide to the market today.

Can B2B BNPL differentiate from other short-term lending options? It has the capability to provide instant credit access to buyers at the online point of transaction – while traditional supply chain finance solutions are often manual, complicated to set up, and not suited for online business ecosystems. B2B BNPL providers can integrate and embed themselves into the B2B value chain through a dedicated Application Programming Interface (API), and they can claim to conduct that integration within a week or two. B2B BNPL providers offering a B2C-like experience can be illustrated as:

What is the B2B BNPL operating model?

The B2B BNPL operating model works the same as B2C BNPL. Businesses looking for short-term access to funds will not bear the cost of borrowing. This differentiates BNPL solutions from other short-term credit loans in the B2B space, as they allow sellers to grant trade credit with minimum risk and without conducting an onerous due diligence process.

The credit assessment is the greater portion of the work of B2B BNPL providers. EDC estimates 35% of B2B BNPL resources to be allocated to that task alone.

The future of B2B BNPL holds great potential

The B2B BNPL opportunity is huge. While the average basket value in B2B is significantly higher than in B2C, business focused BNPL is expected to be less regulated than the B2C BNPL. Organisations are less likely to overspend on impulse buying than consumers. B2B BNPL is available to B2B businesses of all sizes and a wide variety of verticals, including manufacturing, IT, insurance, healthcare, pharmaceuticals, travel, transportation, logistics, real estate, and construction.

Yet, large corporates have historically had an easier access to financing than SMEs. SMEs have long struggled to receive financing from their traditional banks or short-term lending solution providers. A European study, by Allianz, identified in 2019 the SME financing gap in the Eurozone to be € 400 Billion and this gap is even wider in North America. SMEs are the ideal candidates that most need trade credit and B2B BNPL is expected to address their requirements. This is only the start of B2B BNPL market which is diverse and a continuously evolving market. There is great potential for the B2B BNPL providers in the future.

This article was first published by The Paypers, the Netherlands-based independent source of news and insights for professionals in the global payment and e-commerce community.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).

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