BNPL – an alternative for traditional business finance?

Buy Now Pay Later (BNPL) is now one of the most popular payment choices for 360 million consumers worldwide. And the majority of retailers now offer at least one BNPL option at their checkouts.  

But BNPL providers are increasingly looking beyond consumers, courting businesses with their instalment-as-a-service solutions. According to latest figures, B2B commerce is set to be a USD $4 trillion market by 2028 and BNPL is making moves to take a big bite of that pie. 

In the last year, B2B BNPL has emerged as an alternative way for merchants to finance their businesses. Opening up a new way for them to obtain ‘cash’ to pay suppliers, so they can pay them sooner and even secure inventory faster – all essential to combatting growing supply chain and economic pressures.  

BNPL’s competitiveness vs traditional business financing 

BNPL is increasingly seen as a competitor to traditional business financing due to the more favorable credit terms it offers. Traditional business financing only offers a set credit limit, which in many cases does not provide the flexibility businesses need. Most credit card or loan providers only have a month grace period before heavy interest gets added to repayments.  

BNPL judges the spending limit per provider, which gives much more flexibility in when and how much merchants pay back at each instalment. Many BNPL providers give their merchant customers the opportunity to pay back what they owe over a longer period of time with 0% or very favorable interest rates.  

Further, not all businesses have strong credit scores, which means they are at risk of banks and credit card companies rejecting their loan application. In comparison, BNPL providers such as Klarna, for better or worse, are less stringent on credit checks, and so the chance of being accepted for instalment-based credit is higher. Given how easy and safe it is to get B2B lending online using BNPL, with increasing global supply chain issues and tough economic pressures, it can be life-saving for SMBs at risk of liquidity.  

B2B BNPL’s impact on banks & credit companies  

Some BNPL providers are banks – in fact most were already in the business of lending; this is just a new way to package their financing to win new customers. However, with all the positives B2B BNPL provides for businesses, it has left some banks and credit card companies at a loss.  

BNPL is a big factor in the decline of traditional credit card transactions, which are trending down around 8% year-on-year. During Covid-19, £2.7 billion in BNPL transactions were made in the UK (FCA figures). And BNPL payments in the UK are expected to grow by 50.5% YoY to reach $29906.2 million in 2022 (Research&Markets figures). 

If traditional methods of financing do not adapt, they face being left behind and losing market share. In this current economic landscape, businesses need to have access to cash and BNPL allows that to happen in a more efficient and consistent way. 
 
Looking forward 

As businesses continue to navigate themselves out of the current economic storm, BNPL has risen as a guiding light in turbulent times. The flexibility and control it offers businesses enables them to spread payments without incurring fees. And with businesses set to struggle even more as we move into 2023 and the recession, B2B BNPL could be what they need to stay afloat.