The Bright Future of B2B BNPL

“There has also been significant progress on the back ends of payment systems, where new companies are making less visible but equally important innovations to online payments-processing systems that businesses use to send and receive payments.” 

— Eswar S. Prasad, The Future of Money: How Digital Revolution is Transforming Currencies and Finance 

The early 2020s are starting to look like the early 2000s for BNPL companies. Whether that’s a good thing (think Google) or a bad thing (think AltaVista – remember that search engine?) remains to be seen.  

BNPL has been on a tear during the past 36 months. As my colleague TreviPay chief product and information officer Dan Zimmerman notes here, BNPL transaction values jumped by almost 300% between 2018 and 2020. The race for top-line growth among BNPL provider is three years old and maturing, so it’s reasonable to ask what’s next for BNPL.  

After all, fuelling this revenue surge comes at a cost. In the B2C world, BNPL enabled new pools of consumers (who would not have qualified for traditional credit cards) to pay for items on instalment plans stretched out over several months to a year. BNPL also helped drive higher average order volumes. In exchange for taking on this risk, BNPL providers charged retailers higher transaction fees compared to credit cards.  

When these costs become too much to bear, adjustments will follow. These responses likely will alter BNPL’s evolution both expected and unexpected ways.  

If too many bad underwriting decisions were made, more debt likely will need to be written off. If their profit margins erode, BNPL firms will respond by increasing transaction fees that are already significantly higher than the credit card fees B2C sellers pay. BNPL firms could also tighten their underwriting standards, which would slow the revenue growth B2C sellers have enjoyed from BNPL in the past three years.  

How BNPL firms respond to this type of inflection point will separate this domain’s Googles from its AltaVistas. AltaVista – which translates to “high view” or “overview” – was an early search engine that was outperformed by Google and eventually subsumed by Yahoo after the dot.com bust in the early 2000s.  

Other BNPL providers could wade into the B2B space. As they do, they would be wise to maintain a high-level understanding the unique aspects of B2B transactions, whose efficacy and efficiency depend on many more factors and potential sources of friction compared to B2C payments. It will also be important to take a much more detailed look at some of the important innovations to online payments-processing systems that firms like TreviPay have been introducing to the B2B space for decades.