When I talk about “buy now, pay later” (BNPL) solutions, I’m often met with one, or both, of two common misconceptions:
1) They’re a recent phenomenon
2) They’re exclusive to the B2C market
The idea behind BNPL is nothing new; the concept of credit been around since the ancient Egyptians. And while the B2C space has seen a rapidly growing number of BNPL players, the B2B space is also adopting new solutions to offer customers credit.
From airlines to small ticket items, BNPL solutions are prolific in the B2C market – and retailers can be sure that they will convert more customers if they provide one. By blending credit cards with the old “layaway” system, they offer an attractive proposition for consumers: receive the goods instantly but pay over several months in interest-free installments.
BNPL in the B2B sector, however, is more accurately described as “net terms as a service.” Operating on an open terms model, rather than equal payments over several months as in its B2C iteration, BNPL enables vendors to offer their customers special conditions for sales. While this is not novel – in fact much B2B trade is done on the concept of open term sales – the technology accelerating it is. This is where BNPL becomes credit as a service.
The rapid growth of e-commerce has changed the B2B landscape. Buyers want to purchase from anywhere, at any time, and sellers now need to manage the credit risk of 30,000 direct customers rather than 12 regional distributors. This requires instant credit decisions – often for unknown entities.
It’s clearly not practical to hire an army of humans to make rapid credit assessments on such a large scale; companies need tech-based services. BNPL provides an efficient solution for both buyers and sellers, acting as a digital credit manager to make and monitor those calls.
Through advanced algorithms, BNPL solutions can identify if a business is legitimate and credit worthy. If so, they can decide how much credit should be extended to that company, and on what terms. And they can do all that in a split second.
This kind of automated standardization is already well established in the B2C market due to the sheer volume of customers. However, the B2B space still relies heavily on the strength of companies’ business relationships. Think of it like “the olden days,” where credit at your local grocer was based on how well you knew the owner, and how nice you were when you went in – meta data!
As businesses grow, BNPL providers operating in the B2B market will become more nimble, user-generated, and able to facilitate customized options. Despite these advancements, human interaction – and the option to “override the algorithm” – is likely to remain integral to B2B trade.
Companies looking to enter the BNPL game should leverage the expertise of a trusted partner like Allianz Trade. With our knowledge and experience to back them, B2B players can feel confident as they start exploring the benefits of a system as old as the pyramids.
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