By Ion Fratiloiu, Head of Commercial, Yobota
Buy Now, Pay Later (BPNL) has been one of the most talked-about trends in the financial ecosystem in recent years. Many startups around Europe have experienced massive success by offering new split payment lending solutions, with many of the world’s largest and most influential companies rushing to install embedded products into their own purchasing journeys.
In the space of just a few short years, BPNL has become one of the most popular forms of credit among consumers, and while uptake has been stronger among younger demographics, the overall userbase of these innovative new products has grown astonishingly quickly.
It is estimated that 15 million adults of all ages in the UK were actively using BNPL products at the end of 2021, an increase of more than two million since the start of the year. The proliferation of new products on the market – driven in part by the capabilities of modern core banking-as-a-service (BaaS) providers – indicates that the rate of use will continue to increase in the next 12 months.
The appeal to consumers is clear – compared to conventional forms of credit, split payment solutions can provide greater flexibility to the user, as they can pick a repayment plan that suits them best. BPNL also offers an additional level of transparency by showing monthly costs and overall interest at the point of sale, and many providers offer financing with zero interest on shorter-term lending.
Handle with care
BNPL for consumers is not without its risks, however. Like credit cards and loans, if misused, BNPL products have the power to land their users in debt and seriously damage their credit ratings. BNPL is not a license for those with limited capital to spend money they don’t have; rather, it is a means of increasing their short-term liquidity and a tool for building greater financial wellbeing.
But it is not only consumers who can benefit from this added financial flexibility – and it is not with consumers that the next great leap forward for embedded finance will take place. BNPL for business is the next likely source of major growth, as the potential of split payments solutions can offer massive benefits to small-and-medium enterprises (SMEs) and startups as they look to level up.
Just as B2C BNPL products can help consumers increase their short-term spending power and financial wellbeing, BNPL for business can offer a service that is perfectly suited to the needs of a fledgling company. Financing and liquidity are common stumbling blocks for new businesses, and while many funding options already exist within the market, BNPL might be a better option for businesses that are ready to start scaling up.
Putting your best foot forward
For many years, an SME that was looking to invest in itself would have to contend with the rigours of traditional business financing. A gauntlet of repetitive credit checks, lengthy delays and opaque terms and conditions made the process unappealing, while depending on startup incubators and funding rounds was not only unreliable, but also required owners to give up parts of their own business in exchange.
BNPL can offer a more flexible and transparent option when considering the right finance for a small business. Take, for example, a subscription-model startup with a modest userbase; while their revenue streams might be steady and predictable, most new businesses are forced to operate with minimal working capital. Rather than depend on conventional forms of financing, a BNPL for business solution would allow them to select a clear repayment plan that best suits their needs – doing so within an unambiguous timeframe and without hidden charges.
Taking advantage of existing split payment solutions can help this business with its financing, and allow it to scale on its own terms. Additionally, by offering a product of their own, businesses can better engage with their userbase and even drive revenue creation. With a BaaS solution, they could integrate an embedded BNPL product into their payment journey, increasing engagement while maintaining stickiness and not surrendering user data to a third party.
Whether utilising existing products or offering their own, small businesses are poised to benefit from BPNL solutions, and doing so could offer a vital leg up to SMEs attempting to survive in an uncertain time.
What makes BNPL tick
A force behind the massive growth of the consumer BNPL sector in recent years has been the innovation and progress within the banking-as-a-service space. Before BaaS, creating one’s own financial products was a time-consuming, expensive, and difficult endeavour, with complex compliance and regulatory issues to address. Today, this process has been streamlined to the point where a business of any size or description can offer its own banking service with ease, without having to apply for their own banking licence.
By streamlining the process of launching embedded financial services, the scope and number of available products within the market will continue to increase, each offering its own flexible terms and targeting its own chosen demographic. This variety will lead to products being tailor-made for previously underserved segments of the small business ecosystem, who otherwise would have trouble securing the funding they need to succeed.
In the UK, BNPL usage almost quadrupled in 2020 alone, with transactions totalling £2.6b, during a time of general economic downturn and difficulty, and this growth is forecast to continue steadily in the coming years. It should not be only the retail giants and the BNPL providers themselves who benefit from this upwards trend; BNPL for business – whether as borrower or lender – is a means for small businesses to give themselves a much-needed leg up at a difficult time.
Forecast for 2022
Just as BNPL has dominated headlines in recent years, it is likely to continue to hold public interest in 2022. More and more retailers are likely to integrate split payment solutions into their checkouts, more consumers are going to sign up, and – for their own good – hopefully small business will sit up and take notice of the potential on offer from B2B BNPL products.
While following in the footsteps of giant corporations is not always the best direction for small businesses, in this case the best path to success at a time of instability and uncertainty is to follow the upwards trend of BNPL. SMEs are not in a position today to turn down opportunities, and split payment solutions may be the best opportunity on offer.
The success of new challengers from the SME space is an encouraging metric for the health of our overall economy, and it would be heartening to see more small businesses harnessing BNPL and turning it to their advantage, reaching the heights that they rightly deserve.