The popularity of providers like Klarna and Clearpay, which offer short-term, interest-free credit for online purchases, has exploded in the past two years. Earlier this year, Apple presented a preview of its upcoming BNPL feature, called Apple Pay Later – a move that is sure to raise the stakes in this space.
Yet simultaneously, BNPL startups’ recent stock market declines and apparent difficulty in becoming profitable is generating questions over the viability of this business model in the consumer sphere. Add to this the increasing likelihood of heightened regulatory oversight and you have all the ingredients of a reshuffling in the world of deferred payments.
At Hokodo, we believe that the future of BNPL is in B2B, and it is bright. Yes, the world is heading towards a recession, financing is drying out and interest rates are rising, all while scrutiny is increasing on the consumer side. However, these tougher market conditions will promote the emergence of B2B solutions with strong business models that solve real problems.
Our research shows that B2B and B2C are two distinct segments with very different purchasing behaviours and market dynamics. B2B BNPL is a virtually untouched opportunity while the B2C side has become highly competitive with dozens of providers catering for the end consumer. Also, let’s not forget that the B2B trade market is 2.5 times larger than B2C, and growing twice as fast.
Spurred by the pandemic, B2B trade has moved online, and most business leaders do not want to return to in-person deal-making. A 2020 survey by McKinsey revealed that 96% of European B2B buyers would make a purchase in a fully end-to-end, digital self-serve model. The report also found that 73% of B2B buyers are millennials who prefer buying online.
Furthermore, recent research commissioned by Hokodo found that 23% of SMEs believe access to trade credit will be essential for their survival over the next year.
At the same time, traditional payment methods don’t allow B2B merchants to offer payment terms to their professional customers when selling online. This is particularly problematic when more than half of B2B transactions traditionally take place on payment terms. Globally, over $30 trillion of B2B sales rely on trade credit, but the tools to facilitate this have scarcely changed in two centuries!
This requires a fundamental shift in underlying payment methods – and that’s where BNPL for B2B can help. Merchants are currently struggling with complex incumbent solutions, including letters of credit, factoring, credit insurance and supply chain finance, which make managing trade credit accounts extraordinarily painful offline and virtually impossible in the context of an online transaction.
At Hokodo, we recently published a new white paper exploring the future of B2B payments and the crucial role that BNPL has to play as we step into a new digital era for business trade. Though we don’t claim to have a crystal ball, this is our attempt at drawing from our own expertise and that of our ecosystem to predict what’s needed for seamless digital trade credit to become the norm for buyers and sellers.
I hope it sparks lively discussions and inspires the next wave of B2B payment innovation.
Louis Carbonnier, Co-Founder & Co-CEO of Hokodo