Buy-now-pay-later, or BNPL, has taken consumer e-commerce by storm, enabling shoppers to get the items they want today, but put off the pain of paying for them until tomorrow — at zero or very low interest costs. Since BNPL began popping up as an option at checkout via point-of-sale players such as Affirm, Klarna, and Afterpay, it has grown incredibly fast; in 2020, 20% of Americans made at least one BNPL purchase. And the US is well behind other countries; in markets like China and Argentina, consumers regularly use BNPL to purchase everything from video games to cheeseburgers, subway rides, and haircuts. This growing passion for instant purchase gratification will cause consumer BNPL transactions to reach $680 billion worldwide by 2025.
Yet with all the excitement around consumer BNPL, the B2B ecommerce world has been much slower to adopt the practice. Allowing your business customers to take out point-of-sale financing to purchase your goods seems like a no-brainer, so why have online B2B marketplaces — where businesses transact with one another — been slow to roll out BNPL as a payment option? At the recent Bain Capital Ventures B2B Marketplace Founders’ Summit, we set out to answer this pressing question.
I had the pleasure of hosting a panel on B2B embedded fintech at the Summit featuring the CEOs of four leading B2B BNPL companies from three different continents. I asked the panelists to explain both the benefits of B2B BNPL, as well as some of the challenges they’ve faced building the technology and in getting businesses to adopt it.
The opportunity in B2B commerce is about 3X the size of the opportunity in B2C, with trillions of dollars of payment flows worldwide already flowing between businesses. But while the potential for BNPL for B2B transactions is massive, the complexity of lending at the point of sale is demonstrably higher than in B2C, and so it is taking longer for the B2B industry to get to scale.
“A B2B BNPL transaction is like a tweet, while a B2B BNPL transaction is like passing a bill through Congress,” said Chris Tsai, only half-jokingly. Chris is the co-founder and CEO of Resolve, a San Francisco-based B2B BNPL provider that spun out of Affirm. “Overall, it’s a very difficult process because you have credit checks, enrollment, underwriting, reconciliation into accounting systems, multiple payment streams, chasing up payers, and so forth.”
Many B2B merchants deal in high-value, complex transactions, often invoicing buyers for $100,000, $500,000, or more. “You can’t just provide a $2 million loan at checkout in two seconds in the same way you provide a $30 loan to a consumer buying a sweater,” said Dr. Matthias Knecht, co-founder of Billie, a BNPL provider for B2B companies based in Berlin. “BNPL for B2B companies is more akin to traditional loan underwriting.”
But despite the challenges, all the speakers at the B2B Marketplace Founders Summit were bullish on BNPL for businesses, feeling that now is the turning point for the industry.
“It’s a bit ironic because credit terms have been around between businesses since the beginning of time, but BNPL, which is just a modern form of credit, has been slower to take off in the B2B space,” said Louis Carbonnier, founder and CEO of Hokodo, whose tech platform enables embedded financing and insurance for B2B marketplaces. Because B2B buyers and sellers already use invoicing and credit terms, they may have thought they didn’t need BNPL — but what they didn’t realize, until recently, is that B2B BNPL can be far easier, cheaper, safer, and less time consuming than the old ways of extending credit.
“To make purchases, businesses have relied heavily on credit cards such as Visa and Mastercard, which offered an old sort of BNPL but with huge fees,” said Pedro Sonego de Oliveira, co-founder and CEO of TruePay, a B2B BNPL provider from Brazil. “For most businesses, they don’t care how they get credit, they just want the best terms, and credit cards mostly have terrible terms, so many companies are now investigating BNPL for themselves and for their customers.”
When it comes to how to adopt BNPL, there are two schools of thought; B2B marketplaces can build the capability themselves, working with lenders to extend point-of-sale credit, or they can partner with a BNPL provider that manages the entire end-to-end process.
Matthias, co-founder of Billie, clearly believes it’s better to partner with a B2B BNPL provider to embed BNPL into a marketplace. “For B2C, the buy vs. build question has been answered; online shops aren’t experts in lending, so they partner with Afterpay, Affirm, or Klarna to bring BNPL to their customers,” he said. “And now we see the same happening for B2B marketplaces, which have bigger challenges even than B2C retailers since they are dealing with more complex transactions.”
BNPL for B2B marketplaces requires verifying customers’ businesses and identities, allocating credit limits, managing payments processing and reconciliation, running collections, offering refinancing options, and generally managing up to tens of millions of dollars in receivables each month. The best way to handle such a complex task is to work with a third-party BNPL provider, echoed several of the panelists.
“If you decide to build BNPL yourself for a marketplace, you need to be able to solve all the cash flow problems, but also all the workflow challenges, such as payments processing, collections, and accounting,” said Chris.
Because B2B marketplaces collect a rich dataset on their buyers and sellers — including transactions, inventory, purchase volume, and company growth trends — they are in a unique position to extend credit, added BCV Partner Matt Harrris. Vertical marketplaces know a lot about the users on their platforms, including whether a company has been delinquent on payments, has made erratic purchases, is growing its customer base, and lots of other granular data. Since B2B marketplaces own the full software and data layers, they can make loans in an almost certain way, evaluating the credit rating of both the buyers and sellers.
“All the non-embedded lenders, i.e. banks, will be left with are the borrowers fintech players don’t want to lend to,” Matt said. “BNPL essentially brings nearly riskless supply-chain finance to any size company, not just large corporations.”
While BNPL for B2B is still in the early stages, it’s clear this fintech model holds great promise to almost every business sector. With the right infrastructure partners, B2B marketplaces will begin to shift more of their transactional volumes to BNPL, offering customers a low-cost way to finance purchases and sellers a safe, data-driven way to collect payment.