Edgar Dunn & Company (EDC) believes the potential of Business-to-Business (B2B) Buy Now, Pay Later (BNPL) will go beyond the B2B ecommerce ecosystems. B2B BNPL solutions can integrate with Accounts Receivable (AR) solutions to facilitate payment notifications that include the option of utilising BNPL. This could be an easy win for B2B BNPL to increase market reach. Such initiatives can be embedded in procurement or supply chain systems. There is a plethora of opportunities for B2B BNPL providers to investigate and untap new segments.
EDC forecasts global transactions between corporates to reach USD 113 trillion in 2023. The World Trade Organisation estimates that up to 80% of global trade between organisations relies on trade credit. The Net Present Value of trade credit is huge, and this is where the B2B BNPL opportunity exists.
Today, B2B BNPL fintech companies such as Hokodo, Billie, Mondu, Scalapay, or Playter are growing fast and are market leaders in the European ecosystem. Germany-based Billie raised USD 100 million in a series C in late 2021, Mondu has a cumulative financing of just below USD 90 million in 2023, and Hokodo enjoyed a series B extension from Citi in April 2023 leading to more than USD 55 million of cumulated funding. Investments are pouring in – and at EDC, we still consider this market as a blue ocean, relatively untapped and characterised by little to no competition.
Buyers can now connect to new suppliers with one click. The digital transformation of the B2B sector has led to an increased likelihood for businesses to have a higher percentage of first-time clients in their portfolio. The internet has simplified the previously intricate and time-consuming sourcing and due diligence processes. Clients now have access to a wealth of information that enables them to discover BNPL propositions – and B2B digital platforms, such as online marketplaces, are becoming increasingly prevalent for businesses to trade and gain access to credit.
Trade credit is a free short-term lending solution. It is a business agreement where a seller allows a buyer to defer the payment for the goods or services purchased. Trade credit timeframes are often not enough for buyers, as maintaining positive cash levels is paramount for many businesses. This is where short-term lending often plays a vital role. Corporate payment cards, business credit lines, commercial credit, secured loans, and factoring are the usual trade credit instruments that allow organisations to hold on to their cash while paying their suppliers. Today, the new entrant that is propagating from the B2C space into the B2B space is BNPL. Yet, it is nothing more than another form of trade credit.
B2B BNPL is not a game-changing lending solution. It is simply an alternative approach – that is more convenient and more accessible – for businesses to spread the cost of their purchases over a period, at no extra cost. The revenue model and ability of B2B BNPL to seamlessly integrate with a variety of online business ecosystems is something that no other short-term lending option can provide to the market today.
Can B2B BNPL differentiate from other short-term lending options? It has the capability to provide instant credit access to buyers at the online point of transaction – while traditional supply chain finance solutions are often manual, complicated to set up, and not suited for online business ecosystems. B2B BNPL providers can integrate and embed themselves into the B2B value chain through a dedicated Application Programming Interface (API), and they can claim to conduct that integration within a week or two.
Figure 1: Illustration of the B2B BNPL providers offering a B2C-like experience
The B2B BNPL operating model works the same as B2C BNPL. Businesses looking for short-term access to funds will not bear the cost of borrowing. This differentiates BNPL solutions from other short-term credit loans in the B2B space, as they allow sellers to grant trade credit with minimum risk and without conducting an onerous due diligence process.
The credit assessment is the greater portion of the work of B2B BNPL providers. EDC estimates 35% of B2B BNPL resources to be allocated to that task alone.
The B2B BNPL opportunity is huge. While the average basket value in B2B is significantly higher than in B2C, business-focused BNPL is expected to be less regulated than B2C BNPL, and organisations are less likely to overspend on impulse buying than consumers. B2B BNPL is available to B2B businesses of all sizes and a wide variety of verticals, including manufacturing, IT, insurance, healthcare, pharmaceuticals, travel, transportation, logistics, real estate, and construction.
Large corporates have historically had easier access to financing than SMEs. SMEs have long struggled to receive financing from their traditional banks or short-term lending solution providers. A European study identified in 2019 the SME financing gap in the Eurozone to be EUR 400 billion, and this gap is considered even wider in North America. SMEs are the ideal candidates, and B2B BNPL is expected to address their requirements.
This is only the start of the diverse and continuously evolving B2B BNPL market, and there is great potential for B2B BNPL providers in the future.
This editorial piece was first published in the Payment Methods Report 2023, which provides an in-depth overview of the latest worldwide developments in how people pay, the payment methods space, the innovative technologies that these methods work upon, and the best strategies on how to win at conversion and retention.
Louis is a Senior Consultant at the Edgar, Dunn & Company Paris office. He has joined the firm in March 2021 and has graduated with an MBA from ESCP Business School in 2020. Prior to joining EDC, Louis has combined seven years of experience in the banking and aviation industries. Louis enjoys witnessing the modernisation of payments and payment-related processes in B2B ecosystems that drive the ongoing change of the financial institutions’ landscape.
Edgar, Dunn & Company (EDC) is an independent global payment and fintech consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
Every day we send out a free e-mail with the most important headlines of the last 24 hours.
Subscribe now