Embedded Finance
MSME Credit

How Embedded Credit improves CLTV for B2B E-Commerce

Devashish Mulye   /    Product Manager    /    2020-12-26


Embedded Credit solves arguably the biggest problem faced by all B2B E-Commerce platforms. That is to enable credit for merchants who rely on it to to stock up on inventory. B2B E-Commerce platforms want to increase Average Order Value (AOV) but without enabling credit they are restricted to sell only to the few merchants who will buy on cash. This puts a glass ceiling on these platform's Customer Lifetime Value, Average Order Value and Gross Merchandise Value.

Before we proceed, let's establish nomenclature

Platform: an entity selling/distributing goods to merchants/retailers in wholesale mode

Retailer/Merchant: Customers of the platform who buy supplies from platforms for their own business

Credit plays an integral role in any supply chain. Credit enables merchants to stock up extra/high value inventory in anticipation of high demand periods such as festivals.  Ability to take advantage of these high demand periods is the way merchants to grow their businesses. In other words, the growth of the retail sector depends on a smoother enablement of the retailer-pull inventory model aided through availability of in-context and on demand-supply chain credit.

Very few merchants are approved for loans by formal channels as lenders are constrained by lack of borrower data. Therefore, merchants generally acquire credit from informal sources. The terms of such credit aren't merchant friendly and don’t add much value.

The  platforms that get the ability to enable credit can easily relieve these bottlenecks for merchants and increase growth of their as well as merchants businesses. Embedded credit can improve sales on a B2B E-Commerce platform by 15-30%depending on the sector (whitegoods, groceries, pharma, apparel etc)

What does embedded credit mean for B2B E-Commerce

Digital platforms that provide a marketplace for merchants and distributors can embed tailored credit products on their platform at the point of demand creation.

  1. Credit Line - Merchants can fulfill demand hikes due to seasonality or festivals by availing credit lines made available by the platform

  2. Merchant Cash Advance - Merchants can meet their short-term liquidity requirements against accounts receivable

  3. Working Capital Loans - Flexible business loans help merchants meet contingencies or expand their business

How embedded credit increases customer lifetime value (CLTV) 

Increased Activation to Acquisition ratio

Typically merchant-oriented businesses face very high acquisition costs. They provide expensive offers/incentives for activation of the merchant on the platform. Adding credit is known to increase activation of merchants on a platform in multiple ways.

  1. Stand out from other businesses which do not offer seamless credit.

  2. Enabling flexible payment options lowers barriers to trying out a new supplier (platform)

Moving upmarket

Larger merchants run their businesses more capital efficiently and rely on supply chain credit to manage their financial positions. They take into account financing terms to decide about experimenting with new SKUs and whether to stock up for festivals etc. Platforms can work with bigger players only if they can provide larger credit facilities.

Bigger players deal with bigger ticket sizes, and they have higher margins. They order more at a time, and create efficiency for platforms. When platforms don’t provide credit, the platform’s target segment is reduced to cash only merchants who have a much lower AOV for the platform.

Increased share of wallet

A typical retailer is engaged with at least 5 - 6 distributors, with a lot of different goods on offer. A retailer often optimizes for price as well as finance terms. Especially before festivals, merchants go for distributors offering credit. Also expensive SKUs are often stocked at superior financing terms.

Offering credit enables B2B E-Commerce platforms to improve share of wallet, which has multiple downstream effects

Merchants grow, growing your business with them

Access to credit enables merchants to stock up for festivals, sell higher margin premium products, improve their SKU mix and cross-sell more products. This in turn increases the platform’s (platform supplies to the retailer) GMV, AOV and the logistics efficiency.

Platforms can sell to more merchants

Platforms with capital to make available to merchants, will always beat other businesses by becoming the preferred supplier for it's merchants.

Enabling credit gives platforms access to merchants for both up-selling and cross-selling.

Increased retention

Offering credit strengthens the relationship between platform and merchants. Platforms can now offer a variety of products based on deeper customer understanding. Additional parameters about credit worthiness, financial position etc can be leveraged in many ways, including providing more tailored financial services.

Here is a snippet from our Fireside Chat with ShopKirana, in which we discuss how introducing Embedded Credit doubled the Average Order Value and Customer Lifetime Value of ShopKirana. Full transcript available here.

How FinBox helps B2B E-Commerce Platforms double their CLTV

FinBox Embedded Finance Platform natively enables credit for all merchants within a B2B E-Commerce platform. FinBox handles the end-to-end lending flow, including the customer journey, loan offer generation, lender partnerships, and third party integrations, repayment etc.

Traditionally, credit is only available to top 1-5% of your customers. FinBox helps you cover all merchants on your platform.

Some of the salient offerings of FinBox Embedded Finance Platform:

  1. Fully managed digitised lending flow -FinBox provides a UI for each step of the loan lifecycle - loan application, post-approval and post disbursal. The loan application process is fully digital and is entirely inside your app.

  2. Focus on increasing approval -FinBox combines its lending expertise, alternative data underwriting, and data from your platform to credit score merchants.

  3. Large lender network -FinBox connects you to its large lender network which ensures that your merchants get the best loan offers and have a high probability of being approved.

  4. Instant Disbursal -FinBox ensures that the loan is disbursed within 24 hours in most cases.

  5. Customer support -FinBox provides customer support to your applicants. It monitors where your merchants are stuck in the loan application process and helps them complete their application if needed.

Read more about FinBox Embedded Finance Platform and how it can help your business. 

Get Started Now

FinBox helps businesses launch embedded credit in just three weeks with its end-to-end software and risk management stack. Get in touch with FinBox and start building now!