Earlier this week an FCA-commissioned review recommended that the “buy now, pay later” (BNPL) market should fall within the scope of consumer lending regulation. It is hard to argue with this conclusion.
With greater power comes greater responsibility
Today, “buy now, pay later” lenders (Klarna, AfterPay…) escape regulation through a loophole - they technically make loans to the merchants, who in turn offer payment terms to their customers. But for all practical purposes, the outcome is the same as credit card lending: consumers get to make purchases now, and pay for them later. Although “buy now, pay later” lending is generally interest-free, and often comes with more forgiving late-payment terms than credit cards, it still seems reasonable that if consumer lending should be regulated to prevent consumers from over-stretching themselves, then it must be right to extend this to BNPL lending.
While regulation may not be welcome news for most BNPL lenders, we do not believe it will undermine the sector at all: the product meets a valuable consumer need and gets strong endorsement from consumers and retailers. In fact, BNPL providers should view the latest news as a validation of the success of their business model: as the sector matures, it is inevitable that it starts to be treated like any other financial services product.
As one wave of innovation comes to its natural conclusion, another one starts
In our view, the real action is taking place in B2B payments. This is a sector that is still decades behind consumer payments. Unlike in B2C, B2B merchants already choose (or are forced) to offer payment terms to their business customers. But today they lack the fintech innovators to help them do this. As a result, they struggle with 20th-century credit management solutions including paper-based applications for trade credit accounts; manual credit checks; painful invoicing, chasing and cash reconciliation; and the costs of late payments and non-payments, which are the single biggest cause of business failure among SMEs.
Here at Hokodo, alongside a select group of other B2B payments innovators, we’re trying to crack this nut. We provide a B2B version of the “buy now, pay later” experience that trade customers love - like a Klarna for B2B businesses. Business buyers shopping on our merchants’ sites fill their baskets and get real-time offers of payment terms, powered by Hokodo’s trade credit APIs. In the background, we take care of collections; protect against bad debt; and we work with a range of financing partners so the merchant can get paid right after delivery if needed.
Our solution is already being used by merchants across the UK, France and Germany, including ManoMano, Ankorstore, Rooser and Box to deliver substantial uplifts in sales and in customer satisfaction. Real-time trade credit is not the right solution for every B2B merchant, and complementary innovation is taking place in other areas of B2B payments from great companies such as Receipt Bank, Limonetik, Upflow, Libeo, Primer, Trustshare, and Banxware.
All this convinces us that as the consumer BNPL wave is cresting, the wave of B2B payments is only just building.