BNPL for Businesses
When I first heard of Buy-Now Pay Later (BNPL), I thought the concept sounded like a rebranded form of a credit card. Nonetheless, it’s a brilliant model for consumers. Online stores are able to offer customers financing options at checkout which leads to increased sales/conversions, hence BNPL services are able to charge merchants a processing fee on transactions, abstract away payment services, and charge about half of their users with decently high APR loans.
Essentially, these Fintech services have found a new way to acquire customers by directly integrating into Point-of-Sale systems for consumers.
However, the true opportunity for BNPL lies in B2B.
B2B Buy Now Pay Later
BNPL for consumers is helpful, but consumers already have a plethora of options. Let’s think about businesses.
For example, when a lumber distributor buys 10 tons of lumbers from a manufacturer. They might only pay 20% upfront and pay the rest out over 6–12 months. This is quite common among many industries, from clothing to raw materials to consumer goods. Traditionally, everyone other than a retail store receives payment for goods 6–12 months later.
Nonetheless, there is a strong preference for cash payment in these industries. Logically, businesses value liquidity so they can reduce risk on their end and use capital to buy more product or make new investments. In fact, cash payment can usually lead to a 5–10% discount in these industries. Large enterprise businesses have access to bankers and can take advantage of this but average small businesses will usually struggle to find financing.
Hence, there is the potential for arbitrage here. If a BNPL service could accurately provide credit ratings for small businesses, then they could make a margin by reducing risk on suppliers’ end by taking on the credit risk. The type of financing that is only available to multi billion dollar corporations could be made available to small and mid-sized businesses.
The toughest part of building this would be acquiring customers (and accurately rating them). Most businesses don’t exactly conduct transactions with each other over a Shopify store. Transactions are much more personal and typically settled with traditional banks. An effective approach might be integrating directly into accounting software like Intuit or with small-business focused neobanks.