BNPL: The future of B2B payments?

With BNPL’s global value exceeding $150 billion, the consumer financing model is going through something of a golden age. Even while plagued by redundancy announcements and a string of less than favourable press mentions, Klarna – the world’s largest provider of BNPL services – reports an active user base 150 million strong. 

And this growth shows no signs of slowing. It’s predicted that the number of BNPL users worldwide could double by 2027, reaching a total of 900 million, while the value of the global industry is forecast to hit $3.7 trillion 3 years later in 2030.

Yet simultaneously, BNPL startups’ recent stock market declines and apparent difficulty in becoming profitable is generating questions over the viability of this business model in the consumer sphere. Add to this the increasing likelihood of heightened regulatory oversight and you have all the ingredients of a reshuffling in the world of deferred payments. 

At Hokodo, we believe that the future of BNPL is in B2B and it is bright. B2B and B2C are two distinct segments with very different purchasing behaviours and market dynamics. B2B BNPL is a virtually untouched opportunity while the B2C side has become highly competitive with dozens of providers catering for the end consumer. Also, let’s not forget that the B2B trade market is 2.5 times larger than B2C and growing twice as fast, making it ripe for payment innovation.

The impact of COVID-19 on B2B BNPL

The COVID-19 pandemic highlighted the importance of flexible payment solutions in B2B commerce. Buy Now, Pay Later solutions continue to provide businesses with much-needed financial flexibility and help them navigate the ongoing challenges posed by the pandemic.

As businesses faced economic uncertainties and cash flow challenges, they sought flexible payment options to manage their expenses. B2B Buy Now, Pay Later solutions provided them with the ability to make purchases and pay for them over time, easing the financial burden during a difficult period.

B2B BNPL services became a crucial tool for businesses trying to manage their cash flow effectively. The pandemic disrupted supply chains, delayed payments and created financial strain for many companies, but by utilising B2B BNPL, they could access the goods and services they needed immediately while deferring payment.

B2B Buy Now, Pay Later also played a role in the preservation of vendor relationships. As businesses faced financial constraints, they were able to continue purchasing from their suppliers using BNPL. This helped maintain supply chains and supported ongoing business operations during a time when other credit lines may have been restricted.

Business buyers turned to BNPL during the pandemic because it helped them to mitigate heightened financial risks. By utilising flexible payment options with risk protection built in, companies could preserve their working capital and avoid large upfront payments. This was particularly beneficial for businesses that experienced revenue fluctuations, enabling them to manage expenses while maintaining financial stability.

The growth of B2B BNPL during the pandemic has resulted in greater competition in the market. Traditional financial institutions and specialised fintech companies have recognised the potential of B2B BNPL and entered the space, offering a variety of solutions to businesses. This competition has led to innovation, improved offerings and increased options for buyers and sellers seeking B2B BNPL services.

Spurred by the pandemic, B2B trade is rapidly moving online and most business leaders do not want to return to in-person deal-making. A 2020 survey by McKinsey revealed that 96% of European B2B buyers would make a purchase in a fully end-to-end, digital self-serve model. The report also found that 73% of B2B buyers are millennials who prefer buying online. 

The key growth drivers for BNPL in B2B

“B2B can take advantage of BNPL’s benefits by transforming traditional credit card pricing models and lowering the cost of interchange – both of which could bring enormous value to the space by lowering costs for merchants, shrinking retail prices and improving payments efficiencies,” writes Justin Main for Forbes.

Several key drivers are helping providers to create this value and fuel the growing adoption of B2B BNPL services.

Technological advancement and e-commerce adoption

Technological developments and the increased adoption of e-commerce in B2B are driving growth of BNPL for businesses. As businesses embrace digital platforms and online purchasing, they seek payment solutions that align with their digital strategies. B2B BNPL meets this need, enabling businesses to transition smoothly into the digital landscape and capitalise on the opportunities of e-commerce.

Renewed focus on customer-centricity

Customer expectations continue to evolve in B2B, with many business buyers now expecting a purchasing experience that reflects what they’re used to in their personal lives. The result? B2B sellers are placing greater emphasis on personalised experiences, convenience and responsiveness. Shifting towards a more customer-centric approach, they are focusing on understanding customer needs and pain points, which includes payment preferences.

Customer convenience and satisfaction

B2B BNPL services enhance customer convenience and satisfaction. By providing flexible payment terms, businesses can offer their customers a seamless and frictionless purchasing experience. This can lead to increased customer loyalty, repeat business, positive reviews and referrals, further driving growth.

Competitive advantage and differentiation

As more of B2B trade moves online, sellers are increasingly looking for ways to be more competitive and differentiate their offering. By providing flexible payment options that their competitors might not have, businesses can attract customers, win new contracts and secure long-term partnerships. B2B BNPL becomes a value-added service that sets businesses apart in a crowded marketplace.

The role of AI in the future of BNPL

Artificial intelligence (AI) has the potential to play a significant role in the future of BNPL. As AI technologies continue to advance, B2B sellers will have the opportunity to leverage these capabilities to provide more seamless, efficient and secure payment experiences.

Risk assessment and underwriting

By leveraging machine learning algorithms, AI can analyse vast amounts of data, including financial records, transaction history and business credit scores, to evaluate the creditworthiness of B2B customers. This enables more accurate and efficient decision-making, reducing the risk of defaults and fraudulent activities.

Fraud detection and prevention

AI algorithms can analyse transaction patterns, identify anomalies and detect suspicious activities that may indicate fraudulent behaviour. By continuously learning from new data, AI can improve its ability to identify and mitigate fraud risks, protecting businesses and payment providers from financial losses.

Personalised offers and pricing

By understanding individual customer preferences, AI can tailor the terms and conditions of BNPL services, such as repayment schedules and interest rates, to match the specific needs and financial capabilities of each customer. This level of personalisation enhances customer satisfaction and improves conversion rates.

Customer support

AI-driven chatbots and virtual assistants can provide instant customer support and assistance in B2B BNPL transactions. These AI-powered systems can handle routine inquiries, guide customers through the application process and address common issues. By providing real-time support, chatbots enhance the customer experience and reduce the need for manual intervention, resulting in faster and more efficient service delivery.

Predictive analytics and insights

By analysing historical data and patterns, AI algorithms can provide businesses with predictive models, enabling them to anticipate customer behaviour, identify market trends and optimise their B2B BNPL offerings. These insights help businesses make data-driven decisions, improve risk management and enhance their overall strategy.

Automation and efficiency

AI technologies can automate repetitive and manual tasks in B2B BNPL processes. This includes data entry, document verification and compliance checks, leading to increased operational efficiency, reduced errors and faster processing times. Automation frees up human resources, allowing them to focus on higher-value tasks and strategic initiatives.

Enhanced security and compliance

AI-powered systems can continuously monitor transactions, identify potential security breaches and detect non-compliance with regulatory requirements. This proactive approach helps businesses maintain a secure environment, prevent data breaches and ensure compliance with industry standards and regulations.

The role of blockchain technology in the future of BNPL

Blockchain technology could also play a significant role in shaping the future of BNPL services by providing increased security, efficiency, transparency and trust.

Smart contracts

Smart contracts are self-executing agreements with predefined terms and conditions. They could automate the entire BNPL process, including payment schedules, interest calculations and penalty mechanisms. By leveraging blockchain-based smart contracts, B2B BNPL transactions could be executed automatically and securely, ensuring transparency and reducing the need for intermediaries.

Enhanced security and trust

Blockchain's decentralised nature makes it difficult for unauthorised parties to tamper with transaction data. This could improve the security and integrity of the BNPL payment process, reducing the risk of fraud or data manipulation. Blockchain's immutability also enhances transparency, as all transaction records are stored on a distributed ledger accessible to all participants.

Cross-border transactions and settlements

Cross-border payments are traditionally time-consuming and involve multiple intermediaries. Blockchain's decentralised nature and smart contracts enable direct and near-instantaneous transactions between parties, reducing the reliance on intermediaries and simplifying the settlement process.

Data privacy and consent management

Blockchain technology could enable businesses to have greater control over their data privacy and consent management in B2B BNPL. Blockchain-based solutions can provide individuals with ownership and control over their personal data, allowing them to grant specific permissions to businesses for data usage. 

Improved auditability and compliance

Blockchain's transparent and immutable nature could streamline audit processes and enhance compliance in B2B BNPL. All transactions recorded on the blockchain can be easily audited and traced, providing businesses and regulatory authorities with a comprehensive audit trail. This simplifies compliance with regulatory requirements and improves transparency in financial reporting.

Buy Now, Pay Later: The future of B2B payments

Research commissioned by Hokodo found that 23% of SMEs believe access to trade credit would be essential for their survival during 2022 and 2023.

However, traditional payment methods don’t allow B2B merchants to offer payment terms to their professional customers when selling online. This is particularly problematic when more than half of B2B transactions traditionally take place on payment terms. Globally, over $30 trillion of B2B sales rely on trade credit, but the tools to facilitate this have scarcely changed in two centuries! 

“Credit terms are not only a desirable added-value service for B2B payments, they are a necessity – particularly during periods of economic downturn when growth might otherwise stagnate,” wrote Hokodo Co-founder and Co-CEO Louis Carbonnier in an article for Payment Expert. “However, right now, there are still very few credit solutions available for online B2B sales. According to recent research, about three-quarters of B2B marketplaces offer payment through their platforms and, of those that do, only 21% offer a BNPL option.”

The future of B2B payments requires a fundamental shift in how transactions are settled – and that’s where BNPL for B2B comes in. Merchants are currently struggling with complex incumbent solutions, including letters of credit, factoring, credit insurance and supply chain finance, which make managing trade credit accounts extraordinarily painful offline and virtually impossible in the context of an online transaction.

Bringing the entire trade credit management process under one roof, B2B BNPL solves this issue for sellers, enabling them to forget the operational burden of offering credit and focus on their growth goals.

Want to find out how B2B Buy Now, Pay Later could help your business bring its payment processes into the future? Book a chat with one of our payments specialists.