Buy Now Pay Later: alternative funding for SMEs amid economic turmoil

World economy is going through challenging times. Recessions in the past have shown that small and medium-sized enterprises (SMEs) can be highly dependent on bank financing, and thus more sensitive to interest rates, compared to larger firms, who have a broader access to capital markets and higher access to credit.

According to insurer Allianz Trade, the macroeconomic turmoil is widening the trade finance gap, which is estimated to worth over $2 trillion for world’s SMEs and could lead to a 21% rise in SME insolvencies in 2023. In the current context, as SMEs anticipate the risk of facing future financing constraints, they will react by holding higher cash reserves and increasing their focus on managing their cashflows. This macroeconomic environment has led to an increased interest in B2B Buy Now Pay Later solutions, already gaining popularity as B2B e-commerce boomed.

These solutions allow for corporates to provide payment terms to SMEs (making them a more attractive seller and increasing sales) whilst mitigating the increased risk (receivables can be immediately purchased by the bank absorbing the corporates’ exposure to its buyers insolvency). BNPL represents a mutually beneficial solution to both seller and buyers.

Sellers using BNPL can benefit from;

• Higher revenues; increased basket size, buyer loyalty and stickiness
• Credit Risk transferred 
• Streamlined order-to-cash process with upfront financing 
• Focus on business growth, while outsourcing time consuming processes such as collection and reconciliation processes 
• Cost often more competitive than credit card charges 
• while benefits to the buyers include; 
• Access to embedded financing (trough extended payment terms with higher acceptance rate)
• Flexible liquidity; faster short-term financing for B2B customers and often at lower cost than traditional financing 
• Enhanced purchase experience with seamless, fully digital check-out experience 

With 360 million users worldwide, BNPL has become one of the fastest growing payment methods over the past two years – the BNPL market value has nearly doubled between 2020 and 2022 and the global B2B e-commerce market is forecast to grow at 17% until 2030. B2B sellers are now more likely to offer e-commerce channels than in-person selling.

According to B2B BNPL platform provider ‘Two’, e-commerce businesses who have implemented the solution have seen conversion rates go up by +20% and  average order values increase by 60-75%.

BNPL integrates into an e-commerce platform, providing an alternative to Credit Card payments. For clients, it is a seamless payment method with a number of benefits over the alternatives. In essence, B2B provides a safe, simplified, and flexible way for merchants to offer trade credit online.

The typical BNPL flow can be summarized in the following steps:

• At checkout, the buyer chooses between different payment methods, such as BNPL or an immediate card payment
• If the buyer chooses BNPL, there is an instantaneous credit check performed 
• If approved, the buyer is granted 30/60/90 days payment terms 
• Simultaneously, the bank purchases the receivable created and makes payment to the seller
• After the agreed time period, the buyer pays back the BNPL provider through e.g., automatic payment, bank transfer or card payment.

Santander CIB is working hard to always remain at the cutting edge of B2B payment solutions and has recently signed a partnership with Allianz Trade and Two to deliver powerful innovations in the market. Allianz Trade is combining its experience in trade credit insurance with fintech Two’s B2B BNPL technology to provide businesses with real-time data, automated trade credit decisions creating a seamless B2Be-commerce experience.

If you want to know more about our Trade & Working Capital solutions, click here.