How Is BNPL Revolutionising Entire B2B Supply Chain

When SLV Enterprises, a small mobile phone shop in Bangalore, got an order of three new iPhones from a nearby business, he decided to use his own smartphone to place the order from Amazon B2B marketplace and got three new iPhones on the same day. The entire process was hassle free, as he got his product on credit, and he did not need to visit his distributor. The availability of credit for businesses is known as “Buy Now Pay Later” (BNPL) for business, and it is revolutionising the entire retail industry.

As most B2B business is done on credit, the most important trait for success of a distributor depends on his credit policy and collections. Which small businesses qualify for credit, and how much should be their credit limit ? Since margins for distributors are quite low (2 -5 %), he cannot afford to take a loss of payments from a business entity who contributes 2% of his revenues. That’s why the traditional distributors are cautious on credit. First, they ask for advance payment for the first three orders from most businesses. After that, the distributors do reference checks and visit their customers, and then decide to offer a small credit line to them. After getting timely repayments from their customers, the distributors increase their credit limits. We can call this as traditional “Buy Now Pay Later” ( BNPL ) for businesses from traditional distributors.

The BNPL fintechs have automated the entire underwriting process, and they use credit history, bank statements, financials and additional data points for credit qualification and credit limit. Since B2B marketplaces such as Amazon Business need a BNPL fintech partner to grow their business, there has been a rise of BNPL fintechs. The partnership between BNPL fintech and B2B marketplaces is a mutually beneficial relationship, and they need each other to grow their business. The businesses can now get credit on their first order, and they are able to fulfil their customer orders faster.

Unlike banks that provide supply chain financing against collateral, the fintechs are providing unsecured credit lines. A few major brands, such as Samsung, have partnered with SBI to provide credit to large distributors, but the small businesses are still left out for grabs for BNPL fintech players. The business vintage of three years and financial documentation are must for credit lines from banks, but BNPL fintechs are able to use additional data such as GST and sales orders to underwrite small businesses. Unlike banks, the BNPL fintech players underwrite digitally and they are able to provide credit to small businesses in tier-2 and tier-3 cities. Even though banks provide supply chain financing at lower interest rates, the small businesses are choosing BNPL fintechs for convenience and speed.

As per Redseer research, the BNPL for business will grow tenfold to $50 Billion in 2026 from $5 Billion now. The BNPL players enable distributors to focus on procuring goods at best prices and distribution of their goods, not worry about the credit loss. On the other hand, businesses get credit on demand to fulfil their customer orders instantly. The BNPL for business is set to dramatically change the entire B2B supply chain.

(The given article is attributed to Sunil Sinha, Co-founder, Karbon and is created exclusively for BW Disurpt website)