Fintech is in a state of constant evolution. Having created indispensable value in the banking and insurance sectors, fintech creators are now turning their attention to the world of e-commerce and embedded finance. Positioned as one of the key stimulators of growth within consumer marketplaces, and partly credited with supporting retailers through the pandemic, embedded finance is fast becoming an essential tool for the digital retail sector. But can these tools also be applied to B2B marketplaces?
The problem of digital credit in B2B marketplaces
Over the past several years, Buy Now, Pay Later (BNPL), has become an accepted means for consumers to spread the cost of high-value purchases or delay payment until a more convenient date. Despite reputational fluctuations, it has remained successful among both retailers and their customers for providing a simple solution when money may be short. Demand has led to a digital evolution, with the likes of Apple Pay and Klarna providing a workable solution for huge numbers of online shoppers and, vitally, the businesses that serve them.
Until very recently, the opportunity for business buyers to access digital credit has been limited, but that is where we’re now seeing enormous market growth. Tech providers are taking the principles of BNPL and using them to create trade credit products built for e-commerce.
B2B trade has always thrived upon a system of credit. In fact, more than 50% of B2B sales take place on credit terms in the offline world. However, there is no payment method today to grant and manage credit terms to professional customers when selling online. As more business transactions have moved online – forced, partly, by the pandemic – the credit system has failed to keep pace, leaving businesses struggling to reach customers, and business customers struggling to access the goods and services they so desperately needed.
Embedded finance solutions, such as B2B BNPL, are beginning to close that gap. They enable small businesses to access instant credit when purchasing online while providing digital retailers with the turnover they need to not just survive but grow at a time of international crisis.
Embedded finance as a B2B growth tool
At its core, the appeal of embedded finance is that it is mutually beneficial for B2B buyers and sellers. If managed through a trusted external provider, B2B BNPL, for example, allows customers to defer payment by 30, 60, or 90 days and empowers them to access the goods and services they need without impacting immediate cash flow. Meanwhile, suppliers receive the instant payment they need to reinvest in their business, at the same time as facilitating sales which may not otherwise have been possible. An additional benefit for buyers is the improved customer experience, which for sellers also carries the increased potential of future customer spend.
The broader benefits of fintech for B2B
While BNPL is proving to be among the most impactful fintech solutions for B2B, it is not the only one. Fintech is already smoothing multiple pain points for the sector. From processing payments and accessing capital to tracking spending and investing at the right time, embedded finance offerings, such as alternative payment methods and solutions, create faster checkout experiences and enhanced customer experience, laying the foundation for customer loyalty. Add-on services – such as the matching of the right insurance products to the relevant goods at the point of purchase – enable sellers to create value for both their customer and their business.
Looking at the future of embedded finance
Embedded finance solutions are still in the early stages of development, but there is little doubt that as they are adopted and adapted, further innovations will find their way into the market. Currently, only the leading marketplaces – those that make up an estimated 20-30% of online sales – offer these solutions, but it won’t be long before embedded finance and fintech become commonplace in B2B. We only have to look at B2C commerce to imagine the trajectory this might take.
Author bio
Louis Carbonnier is the co-founder and co-CEO of Hokodo where he leads the commercial and product functions. Hokodo is a fintech startup that enables B2B merchants and marketplaces to offer a Buy Now, Pay Later solution to their customers.
