2023: The year digital trade credit exploded

Richard Thornton
Co-Founder and Co-CEO

We’re launching full-steam ahead into the new digital era for payment terms. It’s a hugely exciting time to be part of the industry. At the start of the year, I predicted explosive growth for the market and a surge in new micro-businesses. Nine months later, I’m delving into whether it happened, the most significant trends, and what to expect next.

The market has been exceptionally challenging

After the global events and economic stimuli of the past three years, 2023 was always going to be a year of uncomfortable market corrections. One of the most significant for businesses has been soaring interest rates to try and control rampant price inflation. After central banks around the world tried to fire-up economies with quantitative easing, they are now forced to cool them again with higher interest rates. 

Unfortunately, this means businesses must endure both high inflation and high borrowing costs. Naturally, the number of insolvencies is higher than usual. May 2023 saw 40% more business closures in England and Wales, compared to the previous year. The trend continued throughout the second quarter of 2023, which saw the highest level of company insolvencies since 2009. Meanwhile, during the same period, the number of bankruptcy declarations of EU businesses increased for the sixth quarter in a row.

At the time of writing, inflation has started to flutter down to more manageable levels. This could mean that interest rates may also start to decrease over the coming years. However, significant dips are still a long way off and the high cost of materials is likely to remain challenging to suppliers. 

Despite this, there has been a surge of small businesses incorporated

There are, however, reasons to be optimistic. Although many businesses shut down, a record number – 202,130 – of UK businesses were incorporated in the first quarter of 2023. Compared to the final quarter of 2022, it’s a 19.5% rise. In France last year, more than 1 million new businesses were incorporated, marking a 2% increase from 2021 and a new record.

Business disruption and innovation tend to come hand-in-hand with economic downturns. Over the coming months, I’d expect to see more entrepreneurs take the plunge. An especially exciting area is within the green and sustainable industry. The UK plant-based food market for example, is expected to grow to around £430 million ($547.5) by 2026 – an 80% increase on 2020. 

B2B BNPL exceeds expectations with a rapid boom in popularity 

Earlier this year, I predicted that business-to-business Buy Now, Pay Later (B2B BNPL) would go “unstoppably digital” and quickly gather momentum. However, the dramatic and rapid growth exceeded all expectations. According to research from Marqeta, 43% of all European SMEs used at least one B2B BNPL service in Q1 2023. As the difficult trading conditions continue to bite, that proportion could be even higher today. After all, the global market size of BNPL is expected to expand by a compound annual growth rate (CAGR) of 22% each year until 2030. 

Within our own client pool, we’ve seen significant B2B BNPL uptake across a full range of industries. For example, Covento is a marketplace for businesses which specialises in renewable energy services like wind turbines. It’s a sector that you might not have thought would be suitable for e-commerce, but it’s thriving. We’ve continued to see many more marketplaces offer B2B BNPL, to great success, in sectors as diverse as food and beverages, freight and construction. Just like retail consumers – or possibly even more so – businesses of all natures deeply appreciate a range of payment options. 

B2B BNPL is becoming more specialised 

2023 has seen new digital trade credit models emerge. Rather than using the one-size-fits-all models of yesteryear, firms benefited from a much more personal approach. Restaurants can place food orders several times a week but settle in one lump sum. Freelancers can earn different amounts from one month to the next but earn a steady salary with income-smoothing services. And almost every business from industrial supplies to interior design has a choice of payment or finance options at the checkout. 

As my colleague Lucy Heavens covered in her predictions, we’re already deep in the era of hyper-personalisation. Why should payment terms be any different? As trade credit continues to evolve, I’d expect to see increasingly tailored options and integrations. 

Market consolidation is guaranteed

Those of us who used search engines in the 1995-2000 dot.com era will remember the range of options available. Google sat alongside a host of alternatives, like Yahoo, Ask Jeeves, MSN Search, Bing, Info.com and Search.com. This period has since become known as “Web1” – and that’s a bit like where we are right now with B2B BNPL.

There’s a long tail of around 32 start-ups operating in the digital trade credit space today, including Hokodo. But just like how many of the early search engines fell by the wayside, a large number of these B2B BNPL providers won’t survive – typically because their solutions are not tailored to meet the demands of B2B merchants and marketplaces. It remains to be seen who will come out on top as “the Google of B2B BNPL”… but I don’t need to tell you who my money is on.

Missed our 2023 predictions? Check them out here.

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