Buy Now, Pay Later (BNPL) FinTech companies are on their way to transforming how consumers shop for products. While BNPL is not an entirely new concept, it is the latest and most advanced version. Traditionally, shoppers could use EMIs and other credit forms such as credit cards. However, BNPL has made the entire process much simpler for consumers. In addition, BNPL companies do not even charge any interest from the end consumer for utilizing their services.
BNPL has significantly impacted the consumer (B2C) front, can it do the same for the Business-to-Business (B2B) industry? While B2C retailers have found that integrating BNPL services in their checkout services has helped improve conversion rates and increase average order values, can the same be replicated on the B2B front?
BNPL and B2B Trade Finance
While expanding to the B2B industry seems like the next logical step for BNPL providers, there are some challenges.
The Question of Risk
Before the widespread adoption of BNPL in B2B finance, one of the main questions is who would bear the burden of collection in case of customer non-payment? Banks bear that risk in the current traditional model using credit cards. Since banks operate at a much large scale than the largest BNPL service provider, disrupting this traditional model can be even more challenging than it first appears.
Lenders who have collaborated with such providers will demand a premium if the risk is to be borne by the BNPL providers since they will be responsible for the customer’s unpaid balance. This will lead to higher costs for the suppliers, who will have to offer discounts to make up for the difference, reducing their margins.
Overall, it may not be worth it for suppliers to switch to BNPL services over credit cards. This is because the cost associated with BNPL services could be higher when compared to the nominal rates that credit cards charge.
Further, BNPL providers would have to enter into partnerships with all lenders in order to underwrite the risk associated with non-payment. It can quickly become a highly complex process that would have its own cost structure.
One possible solution is for BNPL services to use emerging technology to automate the underwriting process and use machine learning to make better credit decisions. This can lead to a more streamlined customer approach and inculcate higher brand loyalty.
The Challenge of a Streamlined Process
BNPL needs to successfully integrate with the checkout process of the B2B vendor. If the process is made even slightly less hassle-free, it could lead to lower conversion rates and lower average order size. Debit cards and credit cards dominate the current checkout process, and you even have the option of saving your cards for future purchases.
BNPL service providers are currently largely dependent upon third-party credit programs. The goal should be to integrate their services with traditional supply-side credit cards to offer a streamlined service to vendors and buyers.
If done successfully, this may lead to more cost-effective financing for the vendors than credit cards. However, implementing such an integration is not without its challenges.
During the checkout process, the buyer will have to “sign up” for the program. And in case they get rejected, then they may not go through with the purchase at all. BNPL providers are asking the vendors to bear this kind of risk. In such a situation, the vendor will want higher control of the credit program to ensure it suits their needs.
The Future Outlook
A lot has been said about the possibilities of BNPL in the B2B space. Several global companies are exploring this space, such as Apruve and Slope.
However, any B2B vendor looking to change how financing is done in the space will need to consider many factors and deal with them step-by-step. The end result could end up transforming their business, which is a high incentive.
If successfully implemented, it may even force credit card lenders to improve their rates, which could trickle down throughout the payments space.
Overall, it is remarkable to consider where the BNPL space is headed. The adoption of BNPL has just gone mainstream in the B2C space worldwide, and vendors and service providers are already reaping the benefits. However, there is a long road to travel if they’re looking to truly disrupt the payments space and make a positive change compared to what existed before.
Read more: Why Buy Now Pay Later (BNPL) is the Next Big Thing in Finance?
Wrapping Up
BNPL has just started being adopted in India and has entered the collective consciousness of shoppers in the country. Even though the concept is not new, the added convenience certainly is.
Finezza is a cloud-based lending solution designed for a hassle-free loan lifecycle with streamlined functionalities. Get in touch with us to know more about our offerings.
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