Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Buy-Now-Pay-Later Firms Shift From Gen Z to Businesses

Published 08/17/2022, 05:26 PM
Updated 08/17/2022, 05:26 PM
© Bloomberg. Rely, a buy now pay later app, is displayed on an iPhone in Singapore on Sunday, June 6, 2021. Photographer: Wei Leng Tay/Bloomberg

© Bloomberg. Rely, a buy now pay later app, is displayed on an iPhone in Singapore on Sunday, June 6, 2021. Photographer: Wei Leng Tay/Bloomberg

(Bloomberg) -- Fresh from their shake-up of Gen Z’s shopping habits, buy-now-pay-later firms are now targeting business payments as the next sector ripe for disruption.

Startups such as Billie, Mondu, Tranch and Two 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 Plc (LON:BARC) and HSBC Holdings Plc (LON:HSBA) in the UK and Deutsche Bank AG (NYSE:DB) in Germany. 

Pure-play BNPL firms 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 firm 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.”

Berlin base

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-to-90 euros, our typical transactions are about 10 times that size,” said Aiga Senftleben, co-founder of Sequoia-backed Billie. The Berlin-based firm, 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 $200 billion market opportunity for B2B BNPL just in Europe and the US,” he said. 

In Germany alone, for example, there were 200 billion euros ($204 billion) of e-commerce business transactions completed in 2021, compared with 86.7 billion euros of business-to-consumer e-commerce, according to data by Statista, a research firm.

Growing Pains

Despite their stark valuation declines, BNPL companies such as Klarna, Afterpay Ltd. and Affirm Holdings Inc (NASDAQ:AFRM) have shaken up the e-commerce sector with customer-friendly apps and popularity with 18-24 year olds, forcing many traditional banks such as NatWest Group Plc (LON:NWG) to launch competing offers. 

The advantage these B2B BNPL startups 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.. 

“It does solve some important cashflow issues for businesses, and you have some big investors such as Sequoia and Klarna involved,” he said. “The slowdown in the economy will give them opportunities but could also have a negative impact. It’s still early days.” 

(Corrects to reflect that BNPL startup Tillit has changed its name to Two)

©2022 Bloomberg L.P.

© Bloomberg. Rely, a buy now pay later app, is displayed on an iPhone in Singapore on Sunday, June 6, 2021. Photographer: Wei Leng Tay/Bloomberg

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.