How embedded credit improves CLTV for B2B eCommerce

2020-12-26 · Devashish Mulye · Product Manager

Embedded Credit solves a primary problem faced by all B2B Ecommerce platforms. Since merchants rely on credit to stock up on inventory, even if B2B Ecommerce platforms can facilitate larger orders, they are restricted to sell only to the few merchants who have access to credit. This puts a glass ceiling on these platform's Customer Lifetime Value, Average Order Value and Gross Merchandise Value. 

Credit plays an integral role in the supply chain of the retail sector. Merchants rely on credit to stock up on inventory. Due to seasonality and fluctuation of demand, merchants often need to fulfill a larger demand than they can afford to buy up-front. Being able to fulfil this larger demand is the gateway for them to grow. In other words, the growth of the retail sector depends on a smoother enablement of the retailer-pull model than a distributor-push model.

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

If platforms and distributors have the ability to lend, they are relieved of these bottlenecks. Therefore, Smooth credit enablement can grow merchants, distributors and platforms. Embedded credit can improve sales on a B2B Ecommerce platform by 15-30% depending on the sector (whitegoods, groceries, pharma, apparel etc). 

What does embedded credit mean for B2B eCommerce

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 CLTV 

Retailers grow

Access to credit enables retailers to fulfill larger demands, sell higher margin premium products, improve their SKU mix and cross-sell more products. This increases the platform’s GMV, AOV and the logistical efficiency. 

Platforms can sell to more merchants

Platforms and distributors with capital to make available to merchants, will always beat other businesses. 

Even if a platform has the capability to fulfill more demand and cater to a larger number of merchants, the inability to provide credit to its merchants prevents it from being able to sell to them. Enabling credit gives platforms access to merchants for both up-selling and cross-selling.

Moving upmarket 

Larger retailers run their businesses more capital efficiently and rely on supply chain credit to manage their financial positions. This enables them to experiment with new SKUs and stock up for festivals etc. Platforms can work with such bigger players only if they can provide larger credit lines. 

Bigger players deal with bigger ticket size, 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 retailers who are not offered credit by distributors, resulting in a 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, retailers go for distributors offering credit. Also expensive SKUs are often stocked at superior financing terms. 

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

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.

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 helps platforms

  1. Stand out from other businesses 

  2. Makes platforms more sticky 

  3. Provides superior payment options 

How FinBox helps B2B eCommerce Platforms double their CLTV

FinBox Embedded Finance Platform helps you to enable credit for all your merchants within your digital platform. It handles the end-to-end lending flow, including the customer journey, lender partnerships, and third party integrations.

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

Here are 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 48 hours 

  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!

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