Now that Buy Now, Pay Later (BNPL) has proved its efficacy in the consumer space, there is an opportunity to replicate its success within B2B trade. One could even argue that BNPL is more aligned with B2B than B2C: after all, businesses have been purchasing on credit terms for centuries. Globally, over US$30 trillion of B2B sales take place on credit terms every year, which means that businesses have essentially been resorting to BNPL without realising it! And while consumer lending faces scrutiny, the B2B space follows a different logic and should remain subject to different due diligence requirements.
However, with much larger average basket sizes leading to increased fraud and credit risk, along with higher expectations from buyers, BNPL is more complex to implement in the world of business trade. This perhaps explains why B2B BNPL adoption has lagged behind take-up in B2C.
Agile fintechs and incumbent banks alike know that overcoming this complexity will bring long-term rewards. Players from both sides have begun to accelerate the development of B2B BNPL solutions and partnerships accordingly.
The urgent need for innovation in B2B payments
Trade credit is consubstantial with B2B trade and payments. It’s estimated that at least 50-60% of B2B transactions take place via trade credit, with some approximations suggesting that closer to 80% or even 90% of business trade relies on these payment terms. Yet, most of the solutions used today were developed around the same time as electricity. They are heavily paper-based, and incompatible with the speed and demands of e-commerce. This is perhaps one reason why the trade finance gap (of US$1.7 trillion in 2020) keeps growing as more and more B2B trade moves online.
“Areas like letters of credit payments, for example, and document collection payments for cross-border transactions, are very archaic and very expensive in terms of how they're organised. Besides, you're working with a bank, and obviously there's not 100% coverage with buyers and sellers to have access to a bank to work with them directly,” explains Nick Fulton, CEO and co-founder of B2B fintech for marketplaces, trustshare.
It is incredibly complex to arrange credit terms when selling online. In most cases, buyers first need to apply by filling out a lengthy form and waiting for a credit review that involves web searches and reference calls. E-commerce platforms have to manage limits manually, perform painful reconciliations, orchestrate third-party debt collectors, financiers or credit insurers and chase payment over the phone.
This inefficiency is leading to many lost opportunities. Sellers find themselves:
- Not selling as much as they could
- Bearing risk from unpaid invoices
- Having to funnel precious resources into dunning and collections
- Facing outdated providers who can’t serve all their geographies
Meanwhile, buyers:
- Don’t get access to the credit terms they deserve
- Waste precious time populating long forms
- Miss out on potential business opportunities
All in all, the cost to the global economy is immeasurable. Until online platforms find an efficient and affordable way to support credit terms, there won’t be a payment solution that’s properly suited to online B2B trade.
Now is the time for a payment revolution in B2B e-commerce, and Taavet Hinrikus, founder of Wise (formerly TransferWise), tells us why: “It’s about speed, cost and ease of use. Having a large amount of money in transit will have an impact on your balance sheet so speed matters. B2B financial services is an especially big place for people to get ripped off, so how do you drive the cost down by 10 times? And, finally, everything around Know Your Customer (KYC) and onboarding has a big impact on B2B. It’s a pain to do it well, so it’s worth putting in the effort to ease KYC and onboarding pain,” he says.
The B2B e-commerce market size was valued at close to US$6.9 billion in 2021, and is projected to expand at a compound annual growth rate of 19.7% from 2022 to 2030.
Business is being digitised at an incredibly fast pace. According to Grandview Research, the B2B e-commerce market size was valued at close to US$6.9 billion in 2021, and is projected to expand at a compound annual growth rate of 19.7% from 2022 to 2030. As time goes on, the need for trade credit alternatives that are built for e-commerce will only grow.
Would you like to find out more about the rise of B2B Buy Now, Pay Later and how it’s disrupting the payments and credit world? Download our white paper for exclusive insights.
