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Buy-Now, Pay-Later will revolutionise B2B E-Commerce payments

Devashish Mulye   /    Product Manager    /    2021-03-17

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Buy-Now, Pay-Later,  a B2B credit payment option powered by credit lines, is the fastest growing payment option for E-Commerce and is quickly becoming the standard payment option for B2B E-Commerce. It enables retailers to purchase on credit, and repay later as per their preference. BNPL apps have seen a 162% increase in customer acquisition, with BNPL expected to account for 3% of the global ecommerce spend by the year 2023.

What is Buy Now Pay Later?

BNPL is a payment option available at checkout for B2B e-commerce platforms. It enables users to make a purchase on credit and repay in installments or bullet repayments. The payment period can range from a week to 36 months.

The core problem it solves in B2B e-commerce is one that’s also relevant to B2C transactions, i.e. the lack of liquidity at both the retailer and the seller’s end. The advantage in a B2B context is that it reduces the risk for the merchant, who is paid immediately. The retailer has the flexibility to repay the amount over time.

Why choose BNPL?

Just as Cash-on-Delivery gave B2C e-commerce a tremendous boost by providing an elegant workaround for customers who were averse to placing prepaid orders, BNPL is set to be a similar accelerator of B2B commerce. It provides an elegant solution for customers who are used to only purchasing on credit.

Here’s why the B2B commerce space is opting for this consumer-like payment model:

Credit is the default mode of purchase for merchants

Credit is already the default mode of operation for retailers. Retailers buy on credit from their network of distributors. The offline process is done through bookkeeping, which is seamless but informal. E-Commerce platforms then need to have the same feature to compete with local distributors. These platforms can get an edge over local distributors by -

  1. Offering larger loans on better terms

  2. Offering loans to new retailers based on alternative data underwriting and enabling them to bypass the long process of building trust with various suppliers

  3. Offering multiple loans for diverse purposes

Credit increases retailers' purchasing power and allows them to do more business on the platform even with liquidity constraints. Read more about how credit helps MSMEs grow here.

MSMEs need flexibility 

MSMEs often face cash flow issues, deal with unpredictable demand, and have various working capital needs. BNPL acts as the perfect solution, since retailers enjoy a flexible repayment schedule. This allows them some breathing space and a way to work around cash flow problems. It helps them:

  1. Seize business opportunities by facilitating quick movement of funds

  2. Run business operations smoothly in times of low incoming cash flow

  3. Maintain financial health

Read more about how flexible credit products help MSMEs thrive

Seamless payment option

BNPL provides instant credit in-context at checkout for merchants. Unlike B2C commerce payments, B2B commerce payments are recurring and have significantly larger order volumes. This makes a seamless payment experience especially important for B2B commerce.

Simply put, customer experience now plays a huge role in the B2B space as well (It is considered ‘very important’ by 86% of B2B CMOs), and a smooth checkout is a key aspect of that experience. In fact, the European Payments Council has stated that BNPL methods are boosting customer loyalty and cart conversions by 30%!

Moreover, BNPL has simpler approval processes than that of credit cards, and is easily sanctioned for new businesses as compared to trade credit.

How does BNPL compare to other payment modes?

BNPL vs term loans

Term loans are designed for one-time large monetary needs. They involve a long application process with potential for roadblocks. This leads to high rates of cart abandonment.

BNPL, on the other hand, allows for a revolving credit system where money can be borrowed seamlessly as and when needed. BNPL is also much quicker and convenient. 

BNPL vs credit cards

As compared to credit cards, credit line-powered BNPL has higher approval rates and lower interest rates. BNPL also has far more transparent and easy-to-understand terms of credit than credit cards.

Read more about how BNPL compares against other credit options here.

Why should E-Commerce platforms leverage BNPL?

Providing credit options in the form of BNPL provides the following benefits -

  1. Improved acquisition to activation ratio - Enabling credit paired with the convenience of BNPL at checkout results in acquiring and converting more customers.

  2. Improved CLTV and platform stickiness - BNPL improves the platform’s (Gross Merchandise Value), AOV (Average Order Value), and CLTV (Customer Lifetime Value). It increases the platform's repeat customers. It enables platforms to move upmarket and serve larger businesses and avail the operational and logistical benefits that come with that.  Read more about how B2B credit helps e-commerce platforms improve CLTV.

  3. Platforms are distinguished from competitors - Offering seamless credit options to merchants on your platform distinguishes you from your competition and increases your wallet share. 

Here is a snippet from our Fireside Chat with ShopKirana, in which we discuss how introducing Buy-Now Pay-Later doubled the Average Order Value of ShopKirana. Full transcript available here.

How embedded finance powers BNPL?

Embedded Finance is the seamless integration of financial services (such as credit products) into a traditionally non-financial service or product.

  1. Seamless in-app journey - Embedded Finance enables the provision of flexible, tailored, and in-context credit. Earlier, in order to provide credit, the digital platforms would have to redirect the user to another app managed by a lender. Customers would have to sign up and apply on an unfamiliar app, making for poor user experience. With embedded finance, a credit product is turned into an effortless and tailored payment option that facilitates smooth, recurring transactions. 

  2. Enables sachetized loans - Embedded Finance also enables platform data underwriting. Data about past transactions, order sizes of merchants available with digital platforms is used to underwrite sachetized (i.e. small-sized, short-term) loans that can’t be underwritten only on the basis of credit bureau data.

In summary, Buy-Now Pay-Later brings together the necessary ingredients to reduce friction in B2B Commerce payments and supercharge B2B E-Commerce. B2B E-Commerce platforms looking to scale their business and serve MSMEs must leverage embedded finance to adopt BNPL and reap its rewards.

Get Started Now

FinBox helps businesses launch Buy-Now, Pay-Later payment options on their platform in just three weeks with its end-to-end software and risk management stack. Get in touch with FinBox and start building now!