Fresh from their shake-up of Gen Z’s shopping habits, buy-now-pay-later companies are now targeting business payments as the next sector ripe for disruption.
Start-ups such as Billie, Mondu, Tranch and Tillit are all offering BNPL solutions — which allow buyers to split their payments into instalments — to companies in an attempt to secure a slice of a $700 billion industry that gives companies short-term loans to help them manage their daily business.
The use of short-term credit, most notably via supply chain finance, has become a lifeblood to companies dealing with a range of issues from Covid 19-related lockdowns to rising input costs in an inflationary environment.
With few tech entrants into the sector — and the spectacular failure of Greensill Capital — the industry remains dominated by established lenders such as Barclays and HSBC in the UK and Deutsche Bank in Germany.
Pure-play BNPL companies have seen their valuations crash this year as rate rises across the world challenge the viability of their business models. But plenty say the ease of use such upstarts can bring to age-old credit products will prove a winning formula in this part of the market.
“These B2B BNPL companies can easily win over market share from slow-moving traditional banks,” said Lily Shaw, an early-stage investor at North American venture capital company Omers Ventures, which is not currently invested in the sector but is actively looking at the space. “Banks’ risk profiles are set up in such a way that they can’t move fast enough.”
Billie and Mondu are approaching the model through a BNPL lens; offering small businesspeople a similar experience when buying office equipment as a fashionista would when buying a Gucci handbag using Klarna or Afterpay.
“If a typical transaction on business-to-consumer BNPL is about €80 ($82.62) to €90, our typical transactions are about 10 times that size,” said Aiga Senftleben, co-founder of Sequoia-backed Billie. The Berlin-based company, which was valued at $640 million in its last funding round, works with banks as financing partners and operates currently in Germany, Austria and Sweden.
Mondu co-founder Malte Huffman said that it is hoping to make inroads into the trade finance space, especially given that more and more business transactions are being conducted online.
“We believe there’s a $200bn market opportunity for B2B BNPL just in Europe and the US,” he said.
In Germany alone, for example, there were €200bn of e-commerce business transactions completed in 2021, compared with €86.7bn of business-to-consumer e-commerce, according to data by Statista.
Despite their stark valuation declines, BNPL companies such as Klarna, Afterpay and Affirm Holdings have shaken up the e-commerce sector with customer-friendly apps and popularity with 18 to 24-year-olds, forcing many traditional banks such as NatWest to launch competing offers.
The advantage these B2B BNPL start-ups have is that traditional banks may step back from this sector amid the deteriorating economic outlook, thereby reducing the competition, according to Jeff Tijssen, head of global FinTech at consultancy Bain & Co.