BNPL, BaaS, and Business in 2022

BNPL

By Ion Fratiloiu, Head of Commercial, Yobota  

Since the onset of the COVID pandemic in 2020, UK businesses of all types and sizes have faced innumerable challenges, setbacks, and disruptions, as the wider economy has stalled and restarted and then stalled again. Against this backdrop of uncertainty, a few choice sectors have boomed while all around them others have stuttered; areas like online retail and food and drink delivery have seen exponential growth since the pandemic began. One of the greatest success stories of this difficult period has been that of the novel split payment solutions like Buy Now, Pay Later. 

The change in consumer expectation at point of sale has been drastic – since BNPL’s explosion in popularity, consumers have pivoted sharply from conventional lending options like credit cards to split payment solutions, with more than 17 million Britons having used them. The appeal is clear: the transparent pricing and clear payment plans of BNPL appealed more to consumers than the perceived hazards of conventional credit, while the interest-free short-term option allowed spenders with limited capital but regular income to splash on pricier items immediately – for example, those that were on limited sale. 

A tool for building

While BNPL has the ability to increase short-term spending power and empower people to improve their financial wellbeing, that does not mean it is without its risks. Like credit cards and loans, BNPL that targets consumers is ultimately a credit product and, if misused, can lead to debt and the user’s credit score being damaged. Temperance and moderation are essential, as BNPL is not a license to throw caution to the wind and spend without restraint. Used correctly and carefully, however, BNPL has the power to improve the lives of its user and increase their financial health. 

It is not only with consumers, however, that demand exists for innovative and transparent lending options. Small and medium-sized enterprises (SMEs) have commonly struggled with liquidity and solvency when finding their feet, and even new businesses that can generate revenues and quickly become profitable can struggle when their capital reserves are put to the test. Traditional credit products for businesses exist, but are not without their faults, and just as consumers have moved away from conventional solutions like credit cards, the next likely trend in finance is businesses moving towards BNPL as well. 

B2B Buy Now, Pay Later

The appeal of BNPL for Business is its transparency. The repayment terms are so clear and flexible that businesses, particularly those with financial experts on hand, can make informed decisions about their borrowing, providing short term capital that can strengthen their foundations or help fuel expansion. BNPL solutions are typically faster and more flexible than conventional alternatives, particularly given the breadth of options being fuelled by the rise of Banking-as-a-Service (BaaS) solutions. 

Take, for example, a company with a subscription-based model that provides a monthly product or service to a modest client base. This business can reliably calculate its future income and growth, but is limited in its ability to invest in itself due to a lack of working capital. Depending on incubators and funding rounds to level up is unreliable and can weaken the founders’ grip on the reins in the future. Turning instead to a BNPL for business solution allows the company to dictate the terms of its own expansion – while remaining abreast of the attached costs. 

BNPL is not only something small businesses can benefit from for their own behind-the-scenes operations, however. The simplicity offered by the BaaS model means that businesses can create their own custom BNPL products to offer at the point of sale. By partnering with experienced tech vendors, they can develop white-labelled BNPL solutions for shoppers to increase sales and revenues, while also increasing the stickiness and data capture from the transactions at checkout.

Powering progress

A driving force behind the looming tide of BNPL for business, as mentioned above, is BaaS: the technology behind BNPL has made it easier than ever for any company – regulated or unregulated, financial or non-financial – to benefit from embedded finance. More and more products are coming onto the market, and the ease of creating a new solution means that the range and customisation of those solutions will grow in tandem, leading to niche areas that are typically underserved finally getting the products they deserve. 

In the UK, BNPL usage almost quadrupled in 2020 alone, with transactions totalling a massive £2.6b. The split payment trend has cemented itself in the UK market, and an opportunity of this scale and potential is too great for the SME sector not to stand up and take notice. 

Forecast for the future

BNPL is fast becoming a regular fixture in the checkouts of major retailers across the internet, with even physical stores increasingly taking advantage of ‘offline’ BNPL as well. What is good for the major corporation is not always good for the smaller contender, but in this case, BNPL is simply too prominent a prospect for SMEs to ignore. 

For the sake of the future health of the economy, we must hope to see growth in the UK SME space, as new companies find their feet and go on to create jobs and growth and exciting new products and services that we all might benefit from. If BNPL for Business can help drive this growth, then SME leaders should embrace the potential at hand sooner rather than later. 

About the Author

Author - IonIon Fratiloiu From launching his financial career at Deutsche Bank, Ion spent a number of years consulting in the equity capital markets space and leading sales growth for FTSE500 company Fiserv and core banking provider Thought Machine. He joined Yobota in 2021 to launch its commercial operation, leading GTM strategy and building a diverse and multi-faceted team to take the company to the next stage of growth. 

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