Six fundamental differences between B2C and B2B BNPL

Few markets have ever exploded so fast. In barely 10 years, the value of purchases made through online Buy Now, Pay Later (BNPL) platforms has gone from near-zero to over $300 billion, with expectations that demand will almost double in the next three years.¹ The vast majority of those BNPL transactions have been in consumer retail, with pioneers such as Klarna, Affirm and Afterpay riding high on that wave, only to be challenged recently by industry giants PayPal with PayPal Credit and Apple with Apple Pay Later.

But, in many ways, that is just the first chapter of the BNPL story. With the value of business-to-business (B2B) e-commerce estimated to be several times larger than that of business-to-consumer (B2C)² , there are confident predictions that the B2B BNPL market size will reach well beyond those heights.

It’s important to understand, though, that while they are both based on the same basic concept – of providing credit financing to customers in order to encourage sales – commercial BNPL and consumer BNPL are very different animals. As well as having separate target audiences, B2B BNPL and B2C BNPL are enabled by distinct sets of technologies and processes, by different approaches to checking customer creditworthiness and arrangements for funding credit, and by their own ways of protecting against the risk of late payments or defaults.

1. Two audiences: two models
   Given the higher transaction values involved in B2B BNPL, the risk of fraud presents an even more serious challenge than in the B2C world. That means companies need to rely on Know Your Customer checks using the most accurate, up-to-date, and universal sources for evaluating the risk of each online potential customer and transaction.
   
   Business-to-consumer BNPL enables individual consumers to make personal purchases online using short-term credit, with repayments deferred for a period (typically less than a month) or paid in a series of installments spread over 4-8 weeks. The credit is usually provided to the consumer interest- and fee-free, with the BNPL service provider charging the e-merchant a small percentage of the value of each purchase. Any default in repayment is typically handled by a debt collection agency. 
   
   In contrast, B2B BNPL offers business buyers net terms (such as 30, 60, or 90 days) on their purchases of products and services. Those purchases are usually much larger in value and volume than in the consumer space, and normally require buy-in from multiple decision-makers. 
   
   As such, B2B BNPL has a direct parallel to the kind of invoice financing that has been the hallmark of business transactions for centuries – but with two important differences. While an offline decision on whether to offer net terms to a customer can be considered over a few hours, with B2B BNPL the decision needs to be made instantaneously – as the online buyer checks out. Secondly, the risks of extending credit are often greater with B2B BNPL than with classic invoice financing, as e-commerce typically attracts buyers from a much wider pool, many of whom will be completely unknown to your organization and might be placing orders from territories where you have little or no trading experience – or means of collecting non-payments.
   
2. Contrasting purchasing profiles
   The market leader in B2C BNPL, Klarna, may process two million transactions a day, but most of those are relatively small. Klarna’s average order size is less than $100⁴ , with the average outstanding balance for consumers sitting at around $150.⁵ Other B2C BNPL companies, such as Afterpay, report similar numbers.
   Consequently, the business risk associated with each transaction is low: in fact, Klarna’s credit losses as a percentage of gross merchandise value is less than 1%.
   But that pattern is far from the same for B2B BNPL providers. One of the key reasons B2B BNPL models are so different is that the size, volume, and frequency of transactions is considerably larger. And that is only going to grow with the wider uptake of e-commerce.
   B2B buyers are increasingly drawn to the user experience, the speed, and the convenience of well-structured, trustworthy e-commerce websites. Today, around 70% believe that the new web-dominated buying model makes their business more effective.⁶ And it’s not just a question of greater transaction volumes: more and more B2B customers are buying big online. 
   A recent B2B trade survey by global management consulting firm McKinsey & Company shows that almost two-thirds of business decision-makers are now happy to spend more than $50,000 on a single order, either through digital self-service or remote online interaction. Moreover, a quarter are OK to spend over half a million in a single web-based purchasing session.⁷
   
   As a result, B2B BNPL solutions need to be hooked into global, up-to-date credit assessment services that can instantly and confidently score the creditworthiness of any online buyer. They also benefit from being backed by e-commerce credit insurance that protects the seller from any non-payments.
3. Consumer and commercial payment terms
   One of the fundamentals of B2C BNPL is to keep the loan repayment time short. A typical example might involve a purchase where payment is structured as four instalments over eight weeks (marketed as ‘Pay in 4’), with the consumer required to pay the first instalment upfront at checkout to demonstrate their legitimacy and commitment. Alternatively, the credit period might be fixed, with full payment required within 30 days (often called ‘Pay in 30’).
   
   In contrast, B2B BNPL has been designed as the online equivalent of net terms. In the case of Allianz Trade pay solution, a buyer’s credit profile is checked in real-time as they reach checkout  against a commercial information base of more than 80 million companies worldwide. Armed with the outcome, the seller can confidently offer terms such as 30, 60, or 90 days. With the transaction complete, the e-merchant receives payment upfront, with the credit period underwritten by Allianz Trade pay. 
4. Taking a deeper dive into creditworthiness
   One of the compelling propositions of B2C BNPL for many consumers is that credit is provided without the process influencing an individual’s credit history. To ensure customers are eligible for the financing of a purchase, B2C companies typically run a soft credit check when a consumer applies for BNPL in the build up to their transaction. As such, B2C BNPL is often perceived as easier for consumers to access than traditional credit
   
   In a B2B context, the potentially higher transaction size demands a much deeper dive. With Allianz Trade pay offering, a buyer’s credit profile is checked in real-time as they reach checkout against the trade credit market leader’s in-depth commercial information base, which maintains creditworthiness profiles on more than 80 million companies worldwide. The score they receive will then automatically determine the terms they are offered.
5. B2B BNPL: Joining forces
   To meet the demand for commercial BNPL, B2B BNPL companies such as Allianz Trade have brought together four critical elements into a seamless solution
   - B2B e-checkout platform : Innovative B2B BNPL platforms from a new generation of fintechs such as Two, in3, Bueno.money and PausePay manage the digital processes of offering B2B Buy Now, Pay Later capabilities; they can also handle the financing of the credit offer.
   - Real-time credit assessment : Access to a detailed, up-to-date mechanism for checking the creditworthiness of customers is vital.
   - Financial services backing : Invoice financing can be provided through a B2B BNPL partner (usually the option used by small and mid-sized business) or via a major international bank for multinational merchants.
   - Trade credit insurance : Protecting transactions against non-payment, Allianz Trade pay ensures that the e-merchant will always be paid in full.
   
   To be most effective, those components have to work seamlessly with an e-merchant’s core systems. Using Allianz Trade’s API, for example, merchants can plug all these BNPL services directly into their sales and business systems, allowing them to make BNPL part of their wider business processes for invoices, taxes, accounting, and so on.
   
   As that combination highlights, BNPL B2B solutions need to be considerably more sophisticated than their B2C counterparts to address more complex financial circumstances. The concentrated levels of risk, the grading of companies worldwide on their creditworthiness, and the need for financial options and BNPL platforms tuned for different regions and sizes of company all have to come together seamlessly for companies to reap the full benefits of B2B BNPL.
6. The importance of evaluating risk
   As their popularity has grown, it is perhaps not surprising that B2C BNPL platforms have become a major target for fraud attacks. Anti-fraud company Sift reported in 2022 that abuse tactics aimed at BNPL services had risen by 54% year-on-year.⁸
   
   Given the higher transaction values involved in B2B BNPL, the risk of fraud presents an even more serious challenge than in the B2C world. That means companies need to rely on Know Your Customer checks using the most accurate, up-to-date, and universal sources for evaluating the risk of each online potential customer and transaction.

Those fundamental differences expose some of the widely held misunderstandings about B2B BNPL:

• Myth: Consumer BNPL technology can simply be repurposed for B2B BNPL
  Not only are the two models targeting distinct audiences, with very different needs, B2B BNPL brings together a set of integrated capabilities and processes (often from specialist partners) that are designed to deal with the greater transaction values and, therefore, risk associated with non-payment.
  
• Myth: Companies with trade credit insurance don’t need B2B BNPL
  When backed by Allianz Trade pay, B2B BNPL protects B2B merchant’s online transactions from the risk of customer insolvency, fraud, or an inability to pay. But the online business challenge addressed by B2B BNPL complements rather than replaces trade credit insurance, where purchases are based on invoice financing and net terms. And that traditional trading model is not going away any time soon.
  
• Myth: B2B BNPL models are all the same
  B2B BNPL is not a one-size-fits-all approach. There are models to suit your business’s size, international footprint, deal frequency and size, industry, and cashflow requirements. Allianz Trade, for example, offers three solution sets:
  - Instant payment (domestic) : B2B BNPL platform partners such as Two, in3, Bueno.money and PausePay provide the full BNPL value chain up to the payment, which can be integrated into your sales systems via an Allianz Trade API connection, with insurance cover provided in case any buyer is unable to pay.
  - Instant payment (multinational) : A multi-country and multi-currency instant payment solution for multinationals uses the same BNPL set-up as above but involves a major banking partner whose role is to cover payments in full to e-merchants.
  - Credit terms only : Companies that don’t need to be paid at the point of online purchase can offer deferred payment to their customers in real-time by connecting the Allianz Trade API to their website. In the event that a customer is unable to pay, we step in. 
  
• Myth: B2B BNPL is just old-school invoice factoring by another name
  B2B BNPL does not work in the same way as traditional factoring – even if there are a few parallels. First, an e-merchant using BNPL is not selling invoices to a finance company for a fee and handing over collection responsibility. With B2B BNPL you get the full invoice amount at point of purchase and keep control over your customer relationship and invoicing. 
  

BNPL has already transformed the consumer retail landscape, and it has the potential to do the same in B2B – perhaps on an even larger scale. But the characteristics of these two markets for credit financing are very different. B2B e-merchants need to understand that in order to take advantage of the huge opportunity of B2B BNPL, they need to choose a solution that is robust, suits their business, and doesn’t expose them to undue risk.

Allianz Trade pay solutions for B2B e-merchants power real-time customer credit online, boosting online conversion rates and encouraging your customers to check out with fuller baskets. The solutions provide all the key elements for BNPL success, including E-Commerce Credit Insurance to protect your company from the risk of non-payment.