Two years ago, only 28 per cent of B2B buyers frequently used e-commerce but now it’s the dominant purchasing channel for over 50 per cent of B2B buyers, outperforming both telephone and email. Although upwardly trending pre-2020, COVID-19 significantly accelerated the need for remote purchasing in a safe digital environment. This was accompanied by the need for a robust, online alternative to traditional offline trade credit.
Hokodo’s B2B Buy Now, Pay Later (BNPL) solution helps merchants and marketplaces offer payment terms to SME customers needing it the most. Hokodo modernises the way businesses buy from each other by making it easier and safer to sell to business customers. Its ‘trade credit as a service’ technology empowers B2B merchants to offer credit terms to their business customers instantly, even on their first purchase. In turn, customers benefit from additional payment terms through a frictionless checkout experience.
After a decade working in financial services, one of the biggest problems that keeps Louis Carbonnier, co-founder and co-CEO at Hokodo, up at night is the way the industry has failed to cater to the needs of small businesses. Financing and insurance remain opaque and unfair to those who most need them.
Both Carbonnier and his fellow co-founders decided to set up Hokodo to tackle this issue head-on, using modern technology – in particular APIs and machine learning.
What has been the traditional response to financial technology innovations nationally?
B2C infrastructure and credit options have surged. BNPL companies like Klarna offer short-term, interest free loans to customers wanting to spread the cost of purchases. In B2B – where offering credit is more complex, and arguably more important – progress has stagnated. Almost 60 per cent of B2B trade currently takes place on credit terms, yet businesses have no good way to offer payment terms online, leading to many lost opportunities for buyers and sellers alike.
How has this changed over the past few years?
Due to an increased volume of online B2B transactions – accelerated by covid-19 – Hokodo and its peers have begun to offer an improved digital alternative to trade credit.
Applications for trade credit and the resulting wait for approval are time-consuming and disruptive to the online purchasing experience. Hokodo has developed a set of APIs, allowing us to assess the creditworthiness of a business in less than half a second, even on first purchase.
The practice of merchants shouldering the risk of offering payment terms off their own books is also flawed. Many are understandably unwilling to expose themselves to these risks, while others are financially incapable of doing so. Hokodo bears responsibility for the risk of non-payment when customers select pay-later financing, with all solutions backed by Lloyd’s of London. This gives B2B suppliers the freedom to focus on business growth.
Is there anything that has created a culture of change inside the company?
Ownership is the cornerstone of our culture, meaning everyone feels genuine responsibility and desire to achieve the best outcomes and claim accountability. There is a strong culture of trust among employees to make the best decisions for the company and clients – ego has no place at Hokodo. Openness and honesty with colleagues, customers and partners is the path to developing a scalable culture of iterative feedback loops, making failure acceptable and learning possible. We are always looking to improve and build on our success.
It is important to recognise that the work we do is serious, but we don’t take ourselves too seriously. Creating a positive environment, having fun at work, and feeling passionate about what we do is important to everyone. Ultimately, we always make a conscious effort when hiring to find someone with the appropriate skills and talents for the job, but also the character to further our culture.
What fintech ideas have been implemented?
Our solution is facilitated via a set of API endpoints, making it possible to integrate into an existing checkout without disrupting the customer experience. We also continue to develop several plugins and extensions with e-commerce platforms such as Magento and Shopify. Our scoring and underwriting models rely on machine learning algorithms to deliver the best credit and fraud decisions.
What benefits have these brought?
Through our APIs and e-commerce extensions, merchants can implement our solution with speed and ease. Robust underwriting capabilities allow us to offer the right credit terms and payment plans to our customers, minimising risk exposure to all parties.
Do you see any other industry challenges on the horizon?
The lasting impact of covid-19 is likely to force some small businesses to close their doors. This trend was amortised through various government support schemes but as these measures are unplugged, we expect many businesses to default in 2022.
This is likely to be compounded by the situation in Ukraine which unfolds at a time when advanced economies were already facing the twin challenges of rising interest rates and returning inflation. On one hand, this creates tailwinds for BNPL because businesses will need – more than ever – access to payment terms. On the other, this will force BNPL providers such as Hokodo to underwrite very carefully to mitigate the increasing risks of non-payment.
More widely, the BNPL space faces rising scrutiny and pressure from regulatory bodies. While this is mostly directed towards B2C providers, we don’t know how this will impact the B2B space. Logically, the two services should be evaluated separately. In B2C, BNPL can encourage customer spending regardless of affordability, eventually racking up debt. Regulation will advance customer protection in this area. In B2B, this is not the case and trade credit has been around for decades. For example, why would a construction company buy more raw materials than they need?
Can these challenges be aided by fintech?
For struggling businesses, improved cash flow prompted by BNPL can help them survive the pandemic following the recession. To overcome more complicated issues with credit checks, we continue to improve our underwriting model to ensure we can help as many businesses as possible access the credit they deserve. For instance, Open Banking allows lenders to access additional data to improve their underwriting and gain the confidence to accelerate their underwriting process.
Final thoughts…
There must be progress made before B2B trade and payments catch up with B2C. However, this progress is rapidly occurring, and it will be interesting to see the innovations and creations birthed from this growth. It is exciting that Hokodo is playing an integral part in that progress.
