In the last few years, both as a term as well as as a financial product buy now, pays later has been mainstream. BNPL can take many forms today. It is offered by fintechs via consumer checkout platforms and marketplaces to closed-loop products on marketplaces like Amazon Pay Later. They are also offering outside-use options. Companies that wish to increase the consumer credit and consumption can offer some variations.
BNPL has experienced the greatest growth in the consumer segment globally and has driven lending and retail consumption over the past few decades. BNPL consumer offerings can be a great alternative to credit cards for those who don't have a credit record and cannot get credit from banks. A specific vertical of BNPL products that is targeted at small and medium businesses (SMEs) is gaining traction. This new vertical is called SME BNPL.
BNPL is particularly useful for small businesses that use flow-based or transaction-based underwriting to provide credit.
India's B2B commerce is now online
India has experienced a tremendous increase in e-commerce over the past decade. E-commerce has seen rapid growth across India, with both large and small cities experiencing an explosion in smartphone penetration and internet penetration. Parallel to this, consumer credit has grown as credit cards and digital borrowing have fueled credit-based consumption in both offline and online shops.
The large B2B supply network that enabled the growth of the retail market was fraught with bottlenecks and inefficiencies. It involved many intermediaries, so streamlining was a major problem. Tech players responded by organizing the B2B commerce market at different touch points. They also added convenience, pricing, and easier product accessibility through modern logistics and a tech-enabled supply chain.
Indias B2B e-commerce space has developed rapidly since 2020. The use of paper by small businesses has been replaced with smartphones and apps to manage a large part of their business. This has led to widespread disruption in the way businesses transact. Small businesses that used physical means to purchase goods and services in the past were forced to adopt new online models by the COVID-19 pandemic.
The widespread promotion by the Indian government of an instant payment system, the Unified Payments Interface (UPI), has made a significant impact on how people pay for goods and services. Next step in solving the digital B2B puzzle will be to embed credit within every transaction and invoice.
Online B2B transactions are comparable to offline, but there is one missing link: Small businesses' terms from their vendor/supplier. Contrary to consumers, businesses must purchase goods and services in order to trade them or add value to sell to consumers. This is a slow process that takes a while.
Small businesses often require credit terms to purchase inventory due to the longer sales cycle. A BNPL product designed to support small businesses can help them grow and reduce cash flow burdens as they expand their B2B business through digital channels.
What is the difference between consumer BNPL and SME BNPL for consumers?
A SME BNPL product can be used to purchase finance for small businesses that transact with distributors, suppliers, aggregator platforms, or B2B marketplaces.
