Throughout the past few pandemic years, buy now, pay later (BNPL) has become the latest fintech trend to change how people pay for goods and services. The industry is worth $97 billion and is set to see some significant growth in the coming years. A majority of American consumers have now used a BNPL service, up from 37.65% in July of 2020 — an increase of almost 50% in less than one year.
With millions of shoppers paying for their items over a set period of installments, the options to purchase are more varied than ever. But the real BNPL growth in the next decade won’t come from retail spending; the business model is getting a boost with many B2B businesses moving to add BNPL as a payment option.
B2B spending remains one of the biggest and most constant financial services sectors in the world, and yet it traditionally lags behind the standard-setting B2C sector in innovation. For example, in 2018 global B2B payments hit $125 trillion, while the global consumer payments market only reached $52 trillion. With businesses still facing cash flow issues due to pandemic ripple effects, unstable macroeconomic conditions and ongoing supply chain issues, they’re looking for ways to receive money faster. The B2B space needs a secure and simple way to process payments, and that could come in some form of BNPL.
In a way, B2B payments are actually the original BNPL. Most B2B purchases are made with net 30-, 60- or 90-day terms, with the understanding that services rendered will be paid within the contracted payment window. Payments are usually made online, through salespeople and across borders. From a business perspective, the most important issue in honoring payment terms is cash flow flexibility.
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Credit is a common practice in the business world, but far too much money is regularly tied up in delayed invoice payouts. This can negatively affect a business’ bottom line. Not being promptly paid for products and services because of faulty third-party vendors or outdated manual processes puts pressure on essential services like payroll or stops reinvestment into a business, depending on its size.
But dominant players in B2C BNPL like Klarna and Affirm aren’t likely to take over the B2B BNPL space. True change requires a more niche and verticalized approach.
Meeting B2B Business Needs
Buyers want more options when paying for goods and services. Yet as shoppers become cautious of overpaying for big-ticket products and services because of recession fears and high interest rates pushing borrowing costs up, consumer-focused BNPL players will be forced to rethink their operations. They most likely won’t be able to shift to B2B simply because business spend is far too complex. This is the perfect opportunity for the rise of specialty B2B BNBL providers to make their mark.
Specialized B2B-focused BNPL fintech firms will be able to speed up credit approvals and onboarding to specific industries such as manufacturing and logistics, for example. They will also aid the small- to mid-sized businesses (SMBs) that are usually underserved by banks, which tend not to issue loans to economically smaller entities.
These integrated offerings will eventually give businesses of all sizes access to a complete, consolidated solution that offers both trade credit and card-based payment processing through a single payment vendor. This will also allow businesses to specifically dictate payment terms, enabling suppliers to be paid within a shorter amount of time. Shifting the liability to a company that provides credit instead of the SMB eliminates the nonpayment risk that is a prime problem for businesses.
Regulation Hurdles
The biggest pushback to this B2B growth would likely come from government regulation. In general, BNPL products have been hit with restrictions because of the lack of transparency around lending practices and the potential risk of recklessly pushing people into debt that they simply cannot afford. Buyers tend not to read the fine print about credit reporting, return policies, interest rates and late fees for purchases, thus crippling their personal ability to apply for loans.
While the UK has led the world on the BNPL regulatory front, the U.S. Consumer Financial Protection Bureau (CFPB) also recently suggested that BNPL companies require stricter oversight. Government officials said in September 2022 that they aim to regulate lenders in the same way they monitor credit card companies.
But this is all technically focused on consumer lending. Business lending has fewer regulatory hurdles than other financing types in the U.S. It is an area that’s also exempt from usury laws and is out of the purview of the Truth in Lending Act, which requires certain levels of consumer credit transparency that don’t necessarily cover business financing.
BNPL has become a major element in revolutionizing consumer finance options, and the next logical step is for that same transformation to hit business-focused finance. Fintech innovations show no sign of stopping, especially with such an open opportunity as B2B BNPL, but it will be up to the businesses to recognize the growth and scalability of BNPL to empower them to be in control of payments.
Ralph Dangelmaier is the CEO of BlueSnap. With over 30 years of experience in the payments industry, he is at the forefront of ecommerce innovation, using his knowledge to grow public and private companies via innovative payment solutions. Under Dangelmaier’s leadership, BlueSnap has grown 40X, been on the Inc 5,000 list for four years in a row and was a two-time honoree on the Deloitte Fast 500. Prior to BlueSnap, he served as CEO of P&H Solutions, which grew 15X under his leadership, with a successful exit to ACI. He serves on the Boards of BlueSnap, ETA and Stonehill College.
