The BNPL industry is having its time in the sun. The payment method completely overturned the business consumer market in the last 15 years. This short-term financing option allows consumers to make purchases and pay for them later, usually in instalments over a fixed period.
This gives them the flexibility they need to get things done without waiting too long. But if you look at the metrics, in many market sectors, Buy Now Pay Later has surpassed the peak and has entered a period of consolidation. And the next step forward seems to be stepping foot in the B2B division.
BNPL in B2B Commerce
Like its Business-to-Consumer (B2C) branch, Business-to-Business (B2B) BNPL is a form of short-term lending offered to business buyers at the POS or point of sale. However, this option allows buyers to spread or delay their payments while merchants are paid upfront, resulting in improved cash flow for all parties on deck.
The world of B2B e-commerce is in dire need of a digital revolution in terms of payment. The traditional way of extending credit lines in the B2B sector is outdated and inefficient. BNPL solves both of these problems. Although the rewards seem eye-catching, will BNPL find solid ground in this playfield?
Challenges For B2B BNPL Method
India’s B2B e-commerce market is booming and is expected to reach $1 trillion by 2024 (economic times). However, any Industry this widespread is hard to penetrate. BNPL’s descent into the sector will not be unchallenged. Here are some potential challenges:
1. Overthrowing the Traditional System
B2B credit approvals take weeks to go through. The process can be cumbersome and is already outdated. This system of manual credit approvals is a major hurdle for businesses of all sizes to overcome. This results in a lag between getting customers to sign up and buying from suppliers. It leads to slow customer onboarding and a slow buying process for buyers.
Currently, banks are the sole risk taker in the traditional model of using credit cards. However, since banks operate at a much larger scale than BNPL service providers, disrupting their traditional model can be even more challenging than it seems.
The costs associated with using BNPL services could be higher than the nominal rates charged by credit cards. BNPL providers would need to partner with all lenders to underwrite the risk of borrowers not paying their loans. This allows suppliers to accelerate cash and potentially reduce costs by moving to a different lending model than traditional credit cards.
2. Seamless Integration with B2B
Successful integration of BNPL with the checkout process of the B2B company will require significant resources and coordination. Making the process even slightly easier could lead to lower conversion rates and smaller average order sizes. The checkout process is dominated by debit and credit cards, and you have the option of saving your cards for future purchases.
Currently, many BNPL services rely on third-party credit programs to provide them with the necessary funding. The goal should be to integrate their services with traditional supply-side credit cards to provide a more streamlined service for sellers and buyers.
If successful, this can result in cheaper financing for sellers than credit cards. It will be a win-win situation for everyone involved in the transaction. Merchants will get paid upfront, and buyers will not need to worry about capital or resources.
What Does The Future Hold?
The B2B BNPL offers opportunities to businesses that have been denied access to working capital and purchase financing, allowing them to spend more time on their business affairs. In addition, the product is easy to deploy with its transaction and cash flow-based underwriting.
The supply of risk is largely reduced through the use of multiple data points such as traditional credit data, open banking, and alternative valuation data. It also extends the credit pool to New Credit (NTC) businesses, ensuring credit inclusion.
BNPL has just begun its journey in India recently and, in a short period, has become one of the most favoured payment methods among Indian shoppers. The convenience of this concept is new and exciting.
Deepak Jain, the co-founder of FlexiLoans, says, “There aren’t too many B2B BNPL products in the market, but it can be a gamechanger in the next 12-18 months”.
If businesses don’t offer convenient payment terms online, they’ll lose customers to competitors who have already implemented a BNPL solution or plan to do so soon. As more businesses migrate their purchases to online channels, there is an increasing demand for a modern, digital alternative to trade credit.
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