After taking the world of consumer payments by storm, buy now pay later (BNPL) is slowly entering the B2B domain, bringing with it new opportunities for businesses to access the working capital they need – and for financiers to access new clients.
Unlike the consumer model, led by firms such as Klarna and Afterpay, B2B BNPL’s big draw isn’t the immediate gratification of receiving an item before having to pay it off. Instead, it’s a means by which SMEs that may not be able to tap traditional forms of payables and receivables finance, particularly those operating in the “new economy” of B2B marketplaces, can access liquidity.
The exact shape BNPL takes differs depending on the provider, but a usual structure would see a buyer ordering their goods as normal from a supplier’s website or merchant portal. Rather than paying immediately, they choose to pay in 30 or 60 days, or in instalments, while the supplier receives payment right away from the BNPL provider. In most cases, the financier doesn’t charge interest to the buyer unless repayment dates are missed.
B2B BNPL is similar in many respects to invoice factoring and discounting, in which a financier pays the amounts due to the seller at maturity or in advance and the buyer pays the financier on a later date. However, the key difference is that BNPL solutions are wholly digital, take place prior to or at the point of sale, and are available for even the smallest of transaction sizes.
With online B2B sales on the up – research from trade credit insurer Allianz Trade predicts a 37% increase in transaction volumes by 2025 – this digitally-enabled space presents a new frontier for trade financiers looking to expand their reach, and banks are starting to take note.
Earlier this month, Santander threw its hat into the B2B BNPL ring, partnering with e-commerce payments platform Two as well as Allianz Trade. Through the tie-up, corporates can offer business buyers instant deferred payments at checkout. With an API integration powered by Two, Santander CIB finances upfront payments to sellers and credit terms to buyers globally.
Credit decisions are made instantly based on a corporate information database from Allianz Trade, which in turn insures the value chain against non-payment risk.
Meanwhile, other financiers are working to embed their trade and supply chain finance solutions closer to the intersection of payments and lending, from HSBC – which now has several partnerships with e-commerce platforms under its belt – to tech-based working capital solutions provider Demica, which last year linked up with Mastercard’s Track Business Payment Service to give buyers and suppliers easier access to flexible working capital.
To learn more about the opportunities the growing BNPL trend presents, GTR speaks to Maurice Benisty, chief commercial officer at Demica, Ignacio Frutos, global head of receivables at Santander, and Shehan Silva, global head of digital solutions for global trade and receivables finance at HSBC.
GTR: What is behind the rise of B2B BNPL, or point of sale financing?
Silva: The increase of digitally minded millennials in professional buying roles is changing the approach to B2B procurement; by 2025, it is expected that the majority of the global workforce will be made up of millennials. Many of our clients are responding by implementing plans to grow their online direct-to-customer B2B sales, with sales portals and point-of-sale financing solutions embedded, and reducing reliance on distributors.
Clients are increasingly interested in offering their buyers a smooth online purchasing journey, with the option to pay on terms. Offering embedded financing at point-of-sale has the potential to increase sales velocity – more frequent purchases, less abandonment of transactions, an increase in the average basket size, and a higher probability of retaining customers and attracting new ones. The demand for such embedded financing solutions is a growth opportunity for banks looking to re-invent traditional ways of financing receivables for the digital age.
GTR: What opportunities do you see for your organisation in the B2B BNPL space?
Silva: HSBC has always had a strong presence in receivables financing and with the rising demand for fully embedded solutions is committed to enhancing our solutions to meet our clients’ needs. We have a fully digital point-of-sale financing solution which can be fully embedded into our customers’ sales channel with APIs and real time credit decisioning.
Frutos: B2B sellers still lack the instant and easy payment experience available in the B2C space when looking to grow e-commerce sales. The opportunity for us is to offer our corporate clients, who want to do more business with their long tail of customers and simplify their interactions with them, an end-to-end solution. This solution offers attractive embedded financing options and streamlines the payment cycle with little disruption for the selling corporation as Santander handles the technology, risk management and financing.
Benisty: It is becoming a significant part of our corporate origination business. We’re seeing a lot of inbound interest from platforms that are scaling and building portfolios very quickly. There is a really sustainable use case driven by companies using technology to extend finance at the point of sale. A recent client, Trevipay, is a global technology business specialising in complete digitisation of B2B payments to drive enhanced customer loyalty. It supports merchants by streamlining the purchasing experience and supporting increased customer interaction in B2B commerce, facilitating US$6bn in transactions per year in 18 currencies for customers in more than 27 countries. When the new facility went live, it replaced US$175mn of on-balance sheet asset-backed loans with a flexible US$215mn off-balance sheet securitisation and invoice discounting programme which can scale further to accommodate future growth.
GTR: Can banks tap into the B2B BNPL market alone?
Silva: Most banks have legacy infrastructure, making it very difficult for them to develop tech solutions themselves. The quickest and most financially sound route to market is through partnerships with fintechs who can help provide the technology services and share the risks and rewards. In addition, banks are able to provide the balance sheet which is essential for the programmes to scale.
Banks have established client relationships, as opposed to fintechs that are starting from scratch. Banks are also able better placed to scale in a consistent manner to satisfy the needs of large corporate clients by offering geographical presence and the ability to mirror clients’ footprints, while also providing the balance sheet strength and resilience to handle volume and deal with unexpected shocks.
We believe that partnerships can help to fast-track commercialisation. For banks, this can mean becoming a preferred financing provider with e-commerce portal providers or by partnering with the core capabilities needed to enable e-commerce and financing.
Frutos: Banks are still strong powerhouses with sufficient resources to keep up with the fintechs, but at the same time in order to react quickly we need to be flexible. For us it has been key to partner with Two and Allianz Trade in order to offer a plug and play solution. Our competitors, which are fintechs focused on the B2B segment, are technology natives and also have strong technology value propositions. However, despite the importance of the technology, it’s worth mentioning that having Santander as part of the equation completes the product offering by providing scale, competitive pricing and a global presence to offer a homogeneous customer experience regardless of the geography.
Benisty: In order to be able to finance these portfolios, you need to offer an end-to-end technology led solution with flexible credit models that allow for automatic decisioning at the point of sale. Banks can struggle with that from a product and risk perspective. Where I see most of the traction is when banks partner with platforms that are able to both provide an automated solution with financing against a diversified pool of assets.
GTR: Will B2B BNPL drive a change in the way you do business?
Silva: More and more clients will be looking for embedded financing solutions going forward, whether this is embedded in their sales portal or in their accounting and ERP systems. In order to remain relevant and to meet these demands banks need to respond with competitive solutions. Banks will have to drastically overhaul their processes to cater to this growing need, for example via fully embedded API based solutions that enable customers to obtain financing as part of the buying journey with minimal friction.
Other issues to take into account are the credit appetite of buyers and ongoing credit monitoring: historically, this has been a key issue for banks who have to go through a credit process to allocate credit limits. This process usually takes a couple of days and requires manual effort. It will need to change to provide an instant decision based on data.
Meanwhile, when offering credit to new counterparties, banks have to conduct their KYC processes which also tend to be long and tedious, requiring the prospective client to submit a large set of documentation, which then needs to be manually reviewed and verified. This will need to change to a fully digital on-boarding experience.
Frutos: We believe each working capital product solves different needs and hence all of them can live in parallel. However, through technology and innovation, the winners can capture higher growth opportunities and we’re positioning ourselves in the space though a combination of internally built platforms and partnerships.
Benisty: I see it as an extension of what we have been doing in the broader factoring market where we have worked with factoring businesses to optimise the securitisation structures that fund their factoring portfolios. What is clear is that the growth rates from companies like Trevipay and Sonovate – another recent client win delivering embedded finance to providers of recruitment services – are significantly higher than what we see in traditional trade finance providers, generating more opportunity for us to grow.