Some investors are betting that they have found the next big thing after the hype over the buy now pay later trend faded.
Buy now, pay later companies like Affirm, which let shoppers defer payments to a later date or break up purchases into interest-free installments, are under immense strain as consumers become more wary about spending due to the rising cost of living. Apple entered the ring with its own offering.
Europe will be the real winner in the space according to venture capitalists. Businesses, not consumers, are a more lucrative clientele for the buy now, pay later trend and companies like Mondu and Hokodo have raked in heaps of cash from investors.
The co-CEO of a Berlin-based startup said there is a big opportunity to buy now, pay later in the business-to-business space.
The market for B2B transactions in Europe and the U.S. will reach $200 billion over the next few years according to Huffman.
B2B firms aim to settle transactions between businesses instead of extending credit for consumer purchases. It is different to other forms of short-term finance like working capital loans, which cover firms' everyday operational costs, and invoice factoring, where a company sells all or part of a bill to their customer for quicker access to the cash they are owed.
| COUNTRY | TOTAL VC FUNDING RAISED | |
| Scalapay | Italy | $727.5M |
| Billie | Germany | $146M |
| Playter | United Kingdom | $58.4M |
| Hokodo | United Kingdom | $56.9M |
| Mondu | Germany | $56.9M |
| Treyd | Sweden | $12.3M |
The market for B2B BNPL is much bigger than the market for B2C, according to a general partner at Notion Capital. Notion led a $40 million investment in a U.K. firm.
The average basket size in B2B is larger than the average consumer basket.
Concerns about a potential recession have weighed on the shares of major consumer focused companies.
The Wall Street Journal reported that Sweden's Klarna is in talks to raise funds at a sharp discount to its last valuation. The firm doesn't comment on speculative matters.
Affirm's stock has plummeted more than 75% since the beginning of the year, while Block's stock has plummeted more than 50%. Year-to-date, PayPal is down 60 percent.
Shoppers were able to split their payments into smaller chunks with just a few clicks of the checkout page. Businesses are following the trends.
In light of worsening macroeconomic conditions and the ongoing supply chain crisis, any way of receiving money faster on a flexible basis is going to appeal to businesses.
Two B2B firms from Italy were last valued at $1 billion and $640 million, respectively.
Small and medium-sized enterprises are feeling the pinch from rising inflation, and that's why they're using BNPL services. Mondu chief Huffman said that small and medium-sized enterprises have been under served by banks.
He said that banks can't go down in ticket size to make it economical because the contribution margin they get with such a loan doesn't cover the associated costs.
A more data-driven approach and a more automated approach to credit can expand the addressable market.
A lack of transparency around late payment fees and other charges has caused some regulators to object to the products.
The U.K. has led the charge on the regulatory front.
He said that regulation in B2C would help consumers to shop smart and stay out of debt. Businesses in B2B don't have to worry about overspending on items they don't need.
The level of risk that the B2B players are taking on is something they need to be cautious of. With a possible recession on the horizon, a big challenge will be sustaining high growth while also preparing for potential insolvencies.
The risk appetite will be higher and the affordability checks will be more important in B2B.
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