May 14, 2022
Buy now pay later instant credit
As more and more purchases are made online, both in the B2B and B2C realms, ‘Buy Now Pay Later’ solutions are becoming commonplace. E-commerce sites offer instant credit and low monthly payments at the point of sale across the board—from buying tickets to a concert via Ticketmaster on a laptop, to any of the millions of offerings from Amazon, to transactions in the B2B supply chain.
Consumers, both in B2B and B2C transactions (and life in general!) are in a hurry. The instant gratification of B2C e-commerce has been with us for years now. If you need something, you search for it online, and in one click it can be on its way to you. The world moves quickly and by providing guaranteed approval with easy and fast options for payment, vendors that offer this are light years ahead of their competitors who do not.
Credit cards
Before the emergence of POS BNPL solutions, online shopping was done with a credit card—usually Mastercard or Visa. Which is fine if you have a credit card. But even with an active credit card, this kind of checkout isn’t always reliable. Prepaid credit cards, credit cards issued in a different country to the vendor, and tech hiccups in reconciling credit card information can all lead to a declined transaction and no real way of fixing it. Debit cards used online also face issues—not all vendors accept Visa debit. No way to pay means abandoned carts at checkout and a poor experience for your customers.
B2B customers in particular don’t always have access to a business credit card for making payments. And if they do, interest rates on their balance owing may deter them from making a purchase when there isn’t a BNPL offer.
Bad credit: credit score and credit checks
Another barrier to purchasing is that one-click buy now solutions are easy if you have a good credit score on your credit bureau. These customers have a credit card with a high limit and ample available funds for making instant purchases. They have an excellent credit score that opens doors to appealing interest rates and immediate approval by traditional lenders.
But many consumers are not in this situation. They may have cash flow problems, a poor credit bureau score, or no credit history at all. Whilst building or rebuilding their credit, people still need to make purchases. So how can they do this without further damaging the credit score they’re working so hard to repair? Applying for credit with a traditional lending solution places an inquiry on your file, even if you get declined.
Instant approval options
Many of these services will give you an instant decision, based on the information you provide (employment status for example). Your spending limits and payment plan are clearly laid out before you hit the buy now button—giving you all the information you need to proceed. If you have a credit card, your chances of being approved with a financing option are excellent. Some providers require you to make a one time payment/down payment of up to 25% to be approved, but others do not, so doing your research is a good idea.
Buy now pay later
Enter the new players in the consumer financing payment method game. By interpreting a different set of data, modern lenders are looking beyond traditional credit metrics to create solutions for customers who would previously have been locked out of the system.
BNPL (buy now pay later), no credit check, instant approval websites, and apps allow customers to make repayments in installments, without the worry of their credit score creating a roadblock. They provide various flexible payment terms—from as little as one month through to several years for larger transactions with no annual fee.
With B2B transactions, a solution for customers that need or want BNPL comes through digital net terms. Resolve is one example of a solution that offers net terms on B2B transactions. Through Resolve, businesses are able to request discreet credit checks on their customers (or potential customers), and Resolve informs them on how much credit to extend, and what net terms to offer.
Net terms are crucial to setting up BNPL for B2B transactions. Customers should be given 30, 60, or even 90 days to pay for their purchase without any interest/financing charges. Resolve gives each business a branded payment platform where customers can easily make payments on their account. But the best part of this solution may be the ability to secure advanced payments on invoices without going through a service like invoice factoring.
With all approved customers, Resolve pays up to 90% of each invoice within one day into the business’ bank account. The business gets paid upfront, and the customer receives the net terms they need to pay on their timeline. This is a true win-win scenario.
The best buy now pay later options versus credit cards
BNPL apps are becoming established as a normal part of today’s consumers’ digital wallets. These apps are easy to use and offer benefits and flexible payment plans that credit cards cannot. Like credit cards, they allow you to buy something today and pay for it over time. However, many BNPL apps also offer low fees and interest-free credit, as long as you make your scheduled payments.
This app-based financing is particularly appealing to Gen Z consumers, for whom digital transactions have always been the norm. And it’s not the only age group that is embracing BNPL—everyone is getting on board. Forbes writes that BNPL adoption doubled, and in some cases tripled, across consumers from all generations (Gen Z through to Baby Boomers) in the two years between 2019 and 2021. This is a significant shift in the ways people are accessing credit. The dollar increase in this time period is also mind-blowing—from $20.3 billion USD in 2019 to a staggering $100 billion in 2021.
Pay later apps: Affirm, PayPal, Klarna, Afterpay, Zebit
The best BNPL app is going to be different for every consumer. Whilst they all fall under the same broad BNPL umbrella, there are key differences between the platforms.
Affirm often comes out on top overall with financial commentators. Affirm offers clients up to $17,500 in credit and has no fees at all—not even for late payments. Affirm is also partnered with Amazon, bringing new payment options and terms to purchases over $50. Affirm has also partnered with Shopify and Walmart giving desktop shoppers access to a ‘credit line’ that they might not otherwise get. In addition to being offered at point of sale on many e-commerce websites, the option to create a virtual credit card number to use anywhere is available.
Afterpay is another highly regarded app that appears at point of sale on many e-commerce sites. After being acquired by Square in 2021, this Australian-made platform uses smart credit limits to approve purchases instantly. When you make your purchase, the first payment of four is charged immediately. The subsequent three are two weeks apart. Afterpay’s smart credit limits help consumers to stay within their budget, and intuitive software sends reminders, so you don’t miss a payment. Afterpay’s reach will continue to grow after joining the Square ecosystem.
PayPal, with its long-established good reputation in digital payment processing, has joined the BNPL sector with ‘PayPal in 4’. It focuses on smaller transactions, between $30 and $1500, offers interest-free payment terms, and is available at millions of online merchants selling everything from home decor to mattresses. To use PayPal in 4, shoppers need to have a PayPal account in good standing that is linked to a credit or debit card or to create one.
Swedish-developed Klarna is a popular choice for larger BNPL purchases. It offers various payment terms; a ‘Pay in 4’ option which doesn’t impact your credit or incur any interest charges (so long as scheduled payments are honored), an option to pay the balance in full within 30 days, or a longer 6–36-month term for making larger purchases. The longer terms do, however, accrue interest. Klarna also offers a temporary virtual credit card number that can be used in physical stores as well as online.
Zebit is a little different from the previous platforms mentioned, in that consumers purchase directly from their online store rather than accessing their financing via another retailer. It offers online purchases on a variety of electronic items, fashion, and furniture, with six-month payment terms for monthly installments. Eligibility is based on having a reliable income, with no application fees, membership fees, or late payment fees. Zebit does require a 25% down payment, and finances purchases between $1000 and $25 000.
There are so many BNPL options out there. Weighing up which suits your individual circumstances can take a little reading but is well worth it to get the best rates & terms.
How does BNPL benefit merchants?
With the immediacy of purchasing and the removal of barriers related to securing credit (especially ones that don’t require a hard credit check), customers are incentivized to spend. Perhaps on more high-end products or just a larger volume of products than they would ordinarily have purchased. The chances of converting a prospect to a customer increases as the ease of making payment increases.
The usually short finance terms mean the ability of the customer to make their payments is unlikely to change, and often the goods being purchased are not incredibly expensive. The risk attached to these types of transactions is low, and is assumed by the BNPL platform. The vendor is paid immediately and has cash flow to reinvest in the business.
It isn’t necessarily just consumers with poor credit using these options—many want to minimize their credit file, and manage their cash flow efficiently. These consumers are choosing this product because it offers better terms and benefits than their credit card, not because they don’t have the funds available.
The BNPL sector is shifting credit procurement away from banks and for obvious reasons. When interchange and the associated cost can be eliminated, why would businesses continue with the inconvenience and fees?
B2B buy now pay later
Buy now pay later has changed the face of B2C e-commerce. The apps mentioned are bringing to consumers something that has existed in the B2B realm for some time—more flexibility in payment terms, non-traditional financing, and with that, non-traditional metrics for credit risk. However, the seamless interface found in apps like Affirm and Klassen is not yet commonplace in a B2B transaction.
For consumer-style BNPL to truly take off in the B2B world, credit limits and terms need to be better than what’s currently on offer from banks, private lenders, and supply chain finance providers. The user experience would need to be as seamless and clean as a ‘PayPal in 4’ purchase is to a consumer.
B2B transactions are large. A thousand units are being ordered, not three. More money is changing hands. Traditional credit arrangements can mean a huge lag between the goods being shipped and the money eventually finding its way back to the vendor. Especially in a small to medium business, this is not conducive to driving growth.
Small businesses, startup businesses, and businesses in developing parts of the world have historically been unable to access credit. They lack the paper trail, the references, the connections. Accessing instant credit, based upon entirely different metrics to a legacy finance application, gives these emerging businesses a chance to show the world what they’re made of and prove themselves. What a great way of boosting up-and-coming companies and adding diversity to the supply chain.
Fintech is making these transactions easier. Companies can spend less time manually entering data, and more time driving innovation and improving cash flow. Supply chain finance and dynamic discounting can now be done digitally—a huge step up from pen and paper. But imagine taking this one step further, and having payment terms, discounting, and invoice factoring also managed entirely seamlessly. And it can be, with the development of end-to-end accounts receivable platforms like Resolve.
Automated data processing, machine learning-based risk assessment, and the speed at which these things can happen gives suppliers the information to make credit decisions incredibly quickly and accurately. Errors are automatically identified and flagged for review.
Imagine: your customer easily orders goods or services from your well-designed and functional website, their checkout goes smoothly, the terms of purchase are tailored to benefit everyone, and their purchase is delivered. This makes it far more attractive for them to do business with your company again—their buying experience was and left them with a great impression. Fintech systems for procurement, invoicing and payment make a B2B transaction into a mutually beneficial experience, unlike legacy systems (where it’s more of a battle than a cohesive unit!). Everyone wins, and that’s good for economic growth.
This consumer-style BNPL model is obviously not something that applies to all B2B transactions. For starters, the right solution needs to be a product that fits the ‘checkout’ model of online purchasing. It needs to work perfectly, every time. An abandoned cart is a big deal if it has $15k worth of goods in it. Luckily, companies such as Resolve are bringing solutions to the table that make this work.
BNPL
Buy now pay later is a growing force in the digital payments ecosystem. For consumers who are diligent at making scheduled payments, BNPL offers a way to sustain or improve your credit score, take advantage of the interest-free lending on offer, and efficiently manage cash flow. As the technology continues to evolve, we will see more BNPL platforms specific to B2B transactions.
