Why B2B Is The Way Forward for Buy Now, Pay Later

Buy Now, Pay Later (BNPL) startups offering point-of-sale credit to shoppers have been among the most talked-about tech companies in recent years. In the UK alone, the use of BNPL products nearly quadrupled in 2020, and over 15 million people were drawn to companies like Klarna and Clearpay last year. It’s also been estimated that the number of BNPL users in the US hit the 45 million mark in that same period. 

In many people’s minds, the typical BNPL customer is a younger Millennial or Gen Z-er looking to spread out the cost of paying for, say, jackets and trainers at popular sites like ASOS or Shein. Certainly, much of the mainstream media discourse around BNPL has focused on these kinds of users, with numerous commentators weighing in on the sector’s potential to challenge old-fashioned loans and credit cards. 

However, there’s now increasing attention on BNPL’s role in business to business transactions, to the point where some industry analysts and investors are suggesting that this is where the future of the sector really lies. As Patrick Norris of Notion Capital recently stated, “There’s a lot of excitement around B2B Buy Now, Pay Later at the moment, and rightly so because the B2B e-commerce market is at least twice as large as B2C.”

It’s clear the “traditional”, B2C side of BNPL has been severely shaken by post-pandemic headwinds. Following the precipitous rise in online spending during the lockdown, consumer spending habits have been impacted by a number of factors, from the reopening of physical retail spaces to the soaring cost of living crisis. What’s more, there’s something of a feeding frenzy going on in the B2C BNPL space, with disruptors like Klarna and Affirm facing competition both from tech giants like PayPal and Apple, and legacy banks like NatWest.

Things are looking rather less turbulent on the B2B side, which has seen significant investor interest in 2022. One of the most prominent names in the space, Mondu, very recently raised $43 million in Series A, and intends to use this injection of funds to expand into more European territories. It’s a huge mark of confidence in the Berlin-based startup, which only came into being last year and whose co-CEO believes the B2B BNPL market might be worth as much as $200 billion in Europe and the US alone.

Another name to watch is Hokodo, a B2B BNPL firm founded in the UK in 2018. It recently secured $40 million in Series B, which will bolster its efforts to empower merchants with “the ability to offer credit terms to businesses of all sizes, in real-time.”

There’s also scope for partnerships between providers from across the sector divide. A notable example was the team-up, in October 2021, between Klarna and the burgeoning B2B firm Billie. This has allowed online merchants to offer their business customers Billie’s service via pre-existing Klarna integration.

From the continuing economic reverberations of the pandemic through to the fallout of today’s geopolitical crises, businesses have had to deal with a lot in 2022. In a recent survey of business owners by Goldman Sachs, a whopping 91% reported that economic trends have had a negative impact on their bottom lines. So it’s no wonder that B2B BNPL is widely regarded as providing much-needed benefits for companies – especially SMEs – trying to negotiate the rapids of uncertain times. 

As fintech analyst Philip Benton told CNBC recently, “Businesses are still facing cash flow issues in light of worsening macroeconomic conditions and the ongoing supply chain crisis, so any way of receiving money faster on a flexible basis is going to appeal.”

Hokodo’s services exemplify what B2B BNPL can do for both business buyers and vendors. Buyers are able to access credit in a quick, hassle-free way, without having to go down more time-consuming trade credit channels. Vendors, meanwhile, will know they’ll be paid upfront, and won’t have to run credit checks because Hokodo will recommend credit limits and payment terms for buyers based on their own checks. Hokodo also takes care of the thorny issue of debt collection, in the event of overdue invoices.

BNPL services also encourage higher conversion rates and larger basket sizes, potentially boosting revenues for vendors. Mondu, for example, boasts that its platform can increase conversion by 40% and basket size by 60%.  

Another reason why investors may look more favourably upon the B2B BNPL sector? It’s inherently far less controversial than B2C BNPL, which some critics have warned can normalise debt and lead shoppers to spend beyond their means. More regulation has been called for, with the UK government now set to counter the “potential risk of harm to consumers” by tightening rules around BNPL advertising and stipulating that lenders must carry out affordability checks.

B2B startups are unlikely to face the same pushback. In the words of private equity investor Patrick Norris, “Regulation in B2C is going to offer much needed protection to consumers and help them to shop smart and stay out of debt. In B2B, the risk of businesses overspending on items they don’t need is negligible.”

Of course, B2B vendors will have to be vigilant about potential customer insolvencies during these challenging times. But, as touched on earlier, B2B BNPL platforms can help shoulder the operational burden of assessing such risks. Ultimately, by allowing businesses to offer better payment terms, these startups can make a real difference across a range of industries. 

From food wholesalers to builders’ merchants to freight and logistics companies, the potential users of B2B BNPL services are almost limitless, and we can therefore expect to see more and more investment and consolidation activity in this space in the months and years to come.