Buy now, pay later’s (BNPL) popularity has skyrocketed in the past couple of years as customers begin to look at alternative payment methods. While BNPL in the B2C sector has been incredibly fruitful, the technology’s potential does not stop there: businesses dealing with one another could adopt BNPL as an alternative way to obtain capital quickly.
Ion Fratiloiu is the head of commercial at Yobota. From launching his financial career at Deutsche Bank, Fratilou spent a number of years consulting in the equity capital markets space and leading sales growth for FTSE500 company Fiserv and core banking provider Thought Machine. He joined Yobota in 2021 to launch its commercial operation, leading GTM strategy and building a diverse and multi-faceted team to take the company to the next stage of growth.
Banking-as-a-service (BaaS) has seen a similar spike in usage to BNPL: combining the two new technologies together is just one way that businesses can create more means for success. Fratilou spoke to The Fintech Times to further expand this point and more:
Buy now, pay later has proven itself time and time again to be one of the most enduring news stories of the past few years. Its rapid rise in popularity and scope has sharply contrasted the decline and stagnation brought about by the pandemic, with many of the world’s most prominent companies having adopted BNPL into their offerings.
BNPL’s popularity is hardly surprising given the benefits it can provide consumers, increasing their financial reach and spending power through fixed repayment plans. Spenders with regular income streams and limited capital can leverage future earnings with ease and complete short-term transactions with minimum fuss, while the transparent terms of lending are less daunting than many traditional lending options.
The appeal is evidenced by the increased prevalence of first and third party BNPL products at e-commerce checkouts, with a staggering 9.5 million of those surveyed in the UK stating that they actively avoid buying from retailers that don’t offer BNPL solutions at their point of sale.
The potential benefits for users are not without risk, however – they are still borrowing money, and if BNPL tools are misused the consumer might find themselves falling into debt and lowering their credit rating. BNPL has the power to improve an individual’s financial wellbeing, but also to harm it.
With Which? estimating in July 2021 that a third of UK consumers reported having used a BNPL product at least once, it is safe to say that BNPL has made its way into the forefront of business-to-consumer (B2C) lending, and with the industry predicted to reach $680billion in transaction volume worldwide by 2025, it appears to be here to stay.
What, then, is to be the next big development within this space? While the influence of B2C BNPL will continue to level up, the next world for BNPL to conquer might be another space entirely – the world of BNPL for business.
By businesses, for businesses
Following BNPL’s commercial success with consumers, businesses themselves can stand to benefit from the BNPL revolution. Just as B2C BNPL can improve the financial wellbeing and spending power of individuals with regular incomes and little capital, small-to-medium enterprises (SMEs) and startups often struggle with financial shortcomings and can benefit from a leg up.
Granted, the best solution for emerging businesses in need of financing would conventionally be a funding round, providing the short-term capital needed in exchange for stock or a later return on investment, but B2B BNPL can provide much-needed flexibility and coverage when other funding is not available, or is reserved for larger priorities.
Traditional lending options for businesses can be time-consuming and slow-moving, bearing complex terms and conditions and offering little flexibility. The transparency and ease of use of BNPL could appeal to businesses looking to scale up their operations; small companies with regular revenue streams such as subscription-based models are ideal candidates for the simplified terms of BNPL loans. Not only this, but with trained finance professionals on hand, businesses are naturally better equipped to understand their rights and responsibilities than their consumer counterparts.
This is what makes BNPL such a tempting proposition for small businesses, and it’s not only them that could reap the benefits; if the BNPL for Business sector grows with the same celerity as its consumer counterpart, a new and highly profitable sub-section of the lending industry could swiftly cement itself.
Resting on its foundations
The real reason that a second wave of BNPL success in the B2B space is so likely is not just its suitability to the market’s requirements; it is the progress that has been made in modern core banking that will ensure a speedy and seamless transition. Part of the power behind BNPL’s success is the strength of the banking-as-a-service sector, which has made BNPL products more customisable and scalable than financial products in the past.
This flexibility and resilience will make the jump from B2C to B2B far quicker and easier. SMEs can benefit from products that are tailormade to their own specific needs and criteria – and by working with BaaS providers, SMEs can double the benefit they receive from BNPL by building their own dedicated embedded finance into their platforms.
With the economy in a state of flux in recent years, the general upward trend of BNPL is something that SMEs and startups should view as an opportunity – increasing their financial wellbeing and cash flow management while opening themselves up to a broader clientele. BNPL may not be a perfect solution to all of life’s problems, but with BNPL usage almost quadrupling in 2020, amounting to £2.6billion in transactions in the UK, it is certainly worthy of consideration.
BNPL for business on the rise
Nothing can ever guarantee the success of a small business – its longevity is so intrinsically anchored to a myriad of unpredictable factors that success cannot be assured. The best that SMEs and startups can do is give themselves the best chance possible, availing themselves of every opportunity and advantage that improves their odds of survival.
BNPL is one such tool. It requires caution and careful use, but if harnessed correctly, the benefits can outweigh the risks. We all hope that 2022 will be the year that the uncertainty of recent years gives way to stability and progress, and we should look to BNPL for Business as a cause for optimism.
Ion Fratilou, Head of Commercial, Yobota: linkedin.com/in/ion-fratiloiu-9637b92b