Paul Christensen, CEO at Previse
The recent global boom in buy now, pay later (BNPL) offerings begs the question as to why that’s suddenly happened.
What has brought about this sudden shift? Simply, the BNPL fintechs have harnessed data and technology to create a better product and customer experience. The improvements include greater flexibility and longer terms, instant KYC and underwriting, all embedded at the checkout. The eCommerce platforms where BNPL proliferates provide large networks and significant data that the BNPL fintechs harness.
The beauty of BNPL is that it allows consumer buyers to pay later. The need in B2B is the opposite – corporate buyers already pay later, often squeezing their smaller suppliers in the process. What is needed is the choice for their sellers to be paid now, i.e. “sell now, paid now” (SNPN). The existing B2B platforms have the networks and data, so by applying the right technology a better product and customer experience can be delivered.
Data and technology driving BNPL
BNPL has exploded in the market because consumers love the flexibility and the lower upfront costs that it provides. What’s more important, however, is the superior user experience of BNPL compared to other credit products such as laybys and credit cards, and that experience includes longer terms and more flexibility. The choice of BNPL is embedded into the checkout experience. All consumers have to do is choose their items, navigate to the checkout as normal, and there it is: a no-fuss and easily accessible choice to opt into paying later for their items, embedded seamlessly into their purchasing experience.
An “accessible choice” doesn’t just refer to a slick user interface — it’s also accessible in terms of financing. Companies like Klarna and Afterpay charge sellers (merchants) a fee to offer small point-of-sale loans which their shoppers repay in interest-free instalments, bypassing credit checks. When evaluating their customers, BNPL providers rely on advanced risk analytics based on historical transactional performance data, along with a basic check of credit agency scoring, opening the invitation of credit up to individuals who otherwise may not have the option if they applied for a traditional credit card.
This is the reason that sellers are willing to embed BNPL into their customer journeys and pay the associated credit fees themselves rather than pass them onto the consumer. BNPL gives existing customers who value longer payment terms or swifter product delivery the ability to maximise their value per purchase and buy more and is also a draw for a wider scope of new customers who can now easily make purchases they can plan their budget around.
Going beyond consumers and offering the same experience to small business customers is only a small step. Open banking and applied machine learning give lenders the ability to better predict the creditworthiness of small businesses, and an increasingly digitised credit evaluation process means that low-cost lending can be embedded in the checkout process just like in any B2C e-commerce platform
Of course, there are concerns around BNPL. The industry is largely unregulated and there are concerns that consumers could end up taking on more instalment commitments than they can afford to pay back in the allotted interest-free time periods, especially in a credit crunch. What can’t be denied is that BNPL is a demonstration of increased choice and availability of credit as a direct result of modern technological progress.
B2B – it’s already BNPL!
In B2B where the buyer is a corporate, the default is typically a “credit” transaction, meaning the buyer pays later than the time of purchase. So with large corporate buyers, BNPL is the norm – they almost always buy now, pay later – with payment terms of 30, 60, 90 or 120+ days.
Sellers would love to have the choice of immediate payment, which is why early payment solutions such as virtual cards, dynamic discounting and supply chain finance have been developed. But like laybys and credit cards in the consumer market, while those early pay products are useful, they are ready for a step-change. A crisp digital customer experience will drive that step-change in B2B just as it has done in the consumer market. With the data and technology now available, buyers and sellers can have complete flexibility as to when they pay and get paid. Sellers need “sell now, paid now” (SNPN) – the inverse of BNPL: a “pay me now” button as they submit their invoice.
The future
The B2C payments market has seen terrific innovation over the last few decades years, with the BNPL growth only the most recent development. B2B, which is over 5 times larger, remains antiquated and ripe for massive transformation which will unleash huge value and productivity for the market. The recent explosion of BNPL gives a good guide of what can be achieved by the smart use of technology and data to deliver better, digital customer experiences. Of course, in B2B, an improved customer experience is not enough – the person in a corporate’s accounts payable department paying the invoice will rarely have the authority to adopt new tools. And inertia is strong. But that inertia can be overcome with compelling value propositions.
The answer is in the data, by ingesting buyer-seller trading data at huge scale, and using machine learning to accurately predict future revenues and price risk. One of the applications of this capability is to automatically screen B2B transactions at the point of sale and allow for them to be unwound on an exception basis. This delivers a B2C-like experience where a seller can have a “cash” transaction – they can choose to be paid on day 1 – instead of waiting and chasing for weeks or months. They can have a “pay me now” button.
That’s the future of B2B payments. Every buyer should have the choice to pay in advance, cash, or later. Every seller should have the choice to be paid in advance, cash, or later. All according to their needs. Data makes it possible.
