The new year started with a bang for B2B BNPL. Already in the dregs of 2022, reports and announcements surfaced of the sector’s pivots into the B2B market.
VCs (and their mountainous dry powder) have shown an interest in business-facing firms, and traditional players such as Santander have announced their steps into the B2B BNPL arena.
“We don’t believe that this is just kind of a passing phase or fad,” said Yaacov Martin, CEO and Co-Founder of Jifiti. “Since we’ve come back from the holidays, B2B BNPL has been kind of the talk of the day.”
“What’s interesting is that we’re seeing that it’s not only talking. There are many players in this industry, both on the financial side and the retail side, who are really waking up and looking to do something quickly to fulfill these needs.”
The consumer-to-business shift
The business payments market eclipses consumer payments, with Statista estimating a global market size of $125 trillion.
On the consumer-facing side (valued, comparatively, at $52 trillion), BNPL is now one of the most popular payment methods. Year over year, in 2022, the BNPL market increased by 25.5%, and the holiday season brought reports of 70% surges in revenue.
“Consumers have become very accustomed to a real-time digital experience. And many of these consumers are also business owners. Now wearing their hat as business owners, they’re starting to expect the same type of access to financial products,” continued Martin, citing this as a reason for the 2023 surge in business BNPL options.
However, he said there might be an even more fundamental explanation. “Much of the Buy Now pay later hype was done without proper underwriting. Everybody was approved. That was also part of the issues that the regulators started having.”
“In the B2B arena, they’re speaking about products that will include real underwriting, real credit scoring – different from B2C. Something that is much, much more responsible.”
“It’s not as scary to the various players.”
B2B BNPL could be less risky in uncertain times
While B2B and B2C BNPL products share the same name, they hold some fundamental differences that could be behind their recent rise in popularity.
B2C BNPL has been the subject of controversy and regulatory concern. Many have criticized the product for lowering the barriers to credit too much, creating an unsustainable bubble.
In the B2B market, BNPL agreements are generally created for much higher-value purchases than B2C, split between up to 10 or 12 payments.
“No lender in their right mind would agree to do that without the proper underwriting,” said Martin. “And from a regulatory point of view, it is mandated to conduct an entire underwriting process including KYC.”
He explained that the underwriting process of B2B can also be much more thorough, relying on piecing together snippets of information instead of using a credit bureau to influence the decision.
While this could make the product a less risky approach for creditors, it could create challenges when trying to replicate the “instantaneous” user experience of B2C.
Should the banks be scared?
Much of fintech aims to disrupt, and BNPL is no exception. The product has surfaced as an alternative to credit cards, a traditional banking and commerce bedrock.
So, the inevitable question must be asked, is B2B BNPL the end of banks’ reign over credit?
According to Martin, it could be the opposite.
“It is a huge opportunity for banks. B2B, by definition, is catering to larger loans and longer durations, a lot of which the BNPL fintechs will find it much harder to provide – definitely in the current environments.”
He explained that businesses are also very accustomed to approaching banks for their credit needs, creating a connection that banks could take advantage of.
“Instead of waiting for those businesses to come to them, they can go where those businesses need it most, meaning embedded in the transaction journey, sometimes even earlier in the lifecycle of the business. It comes down to knowing how to embed these offers, where the businesses meet them in the natural course of business.”
“Banks are very well positioned here to capture this opportunity. Fintechs have a part to play in this, but not necessarily as the underwriter, more as the facilitator.”