By Daniel Lanyon on Thursday 30 June 2022
Fintechs offering short term finance for companies has been a standout category for venture capital investors in recent months while larger lenders are also hatching grand plans.
‘Buy now, pay later’ tends to divide opinion. It has a marmite effect on most people, you could say.
Some people love it as a handy challenger to credit cards others are concerned it encourages reckless spending and can contribute to problem debt.
While that debate rages on in the consumer market, a new boom in interest is occurring in the world of funding SMEs with short-term loans much like the way Zilch, Affirm or Klarna do for shoppers.
B2B BNPL - not the easiest of acronyms - is bucking the bearish trend in tech and having its moment in the sun.
A succession of fundraises from newer startups has also been met by other more established fintech companies taking an interest.
Funding Circle, the UK-listed fintech lender to SMEs is bullish on the market, seeing the opportunity to expand its product range away from offering term loans, which it has done for over a decade.
Its CEO Lisa Jacobs told AltFi earlier in 2022 that it would be scaling up its ‘Flexipay’ product materially in the second half of the year.
“This is the thing that I'm probably the most excited about that we're doing. It moves us from being a term loan product, it builds on the tech platform that we've built, the customer advocacy that we've got, and the strong position that we're in and moves us into being a multi-product and more frequent part of our customers lives,” Jacobs said.
Funding Circle quietly conducted a beta trial of 850 existing business customers before expanding Flexipay to new customers in April.
“It's gone down very well. We've had nearly £12m of credit limits approved and the engagement has been higher than we anticipated. Transactions are, on average, about 20 per cent higher in terms of the amount. They're happening about twice as frequently as we had initially anticipated,” Jacobs said.
“We will ramp up in the second half of the year as a fully fledged product,” she added.
Funding Circle recently hired Jerome Fernandez, a former Remitly and Revolut exec, to head up the company’s B2B BNPL product.
Jacobs says the new product has meant customers are more engaged with the Funding Circle platform with monthly engagement commonplace.
"This is a really great product proposition that moves us into a new market space as well moves more into that payment space,” Jacobs said.
"We're really excited about this and see it being a big part of our business going forward,” Jacobs added.
Businesses can pay any supplier with credit facilities of between £2,000 and £30,000 and spread the cost over three months. They get charged a 3 per cent one-off fee.
“We found that small businesses really find that very valuable for managing cash flow. And some of them actually get a discount for paying early And so they're taking arbitrage and making a bit of money,” Jacobs said.
“Others are just using it to save and manage their cash flow, particularly during bumpy periods. Cash flow is always the thing that comes up in terms of small businesses' biggest pain points,” Jacobs said.
Recent investments into the B2B BNPL market in the past few weeks include Playter, Hokodo and Tranch.
They join the likes of Berlin-based Billie which quadrupled its last valuation in November of 2021 to $640m following a $100m equity funding round as well as a credit line of $200m per month from a consortium of German banks including Raisin DS and Varengold Bank.
While Dawn Capital led the equity fundraising for Billie's giant round, Klarna notably also took part as did China tech giant Tencent.
Hokodo, another B2B BNPL serving the UK and five other markets European markets with big expansion plans, raised $40m in an equity raise last week led by Notion Capital.
“There’s a lot of excitement around B2B BNPL at the moment, and rightly so because the B2B Ecommerce market is twice as large as B2C,” Notion Capital general partner Patrick Norris said.
The company was founded by Richard Thornton, Louis Carbonnier and Sami Ben Hatit in London in 2018.
“The B2B purchasing experience has long lagged behind its B2C counterpart, and business customers are calling for higher quality services as online sales continue to gain ground in B2B,” Hokodo co-founder and co-CEO Louis Carbonnier said.
Tranch raised £3.5m ($4.25m) in pre-seed equity and debt funding in a round last month led by Flash Ventures and Global Founders Capital.
Another competitor Mondu was founded in August 2021 by Gil Danziger, Malte Huffmann and Philipp Povel in Berlin. The latter pair previously founded and scaled Dafiti, an online fashion and lifestyle platform in Latin America listed in an Initial Public Offering (IPO) in 2019.
Mondu has a BNPL product for B2B marketplaces and B2B merchants and recently nabbed Miyu Lee as Chief Legal Office and General Counsel Klarna.
The sector is still nascent but with a host of newer players competing across Europe as well as more established names such as Funding Circle now ramping up their activities B2B BNPL is a clear area bucking the bearish market sentiment. Let's see if faces the same scorn as its consumer cousin.
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