The buy now, pay later (BNPL) industry, which has revolutionised consumer spending habits, is now turning its attention to a new frontier: the business-to-business (B2B) market. Facing increased regulatory scrutiny and a maturing consumer sector, BNPL providers are pivoting their models to capitalise on a larger, yet largely untapped, market. This shift is being driven by a confluence of factors, including the need for new revenue streams and the significant opportunities presented by B2B e-commerce.
For years, BNPL firms like Klarna and Afterpay have focused on the retail sector, offering a way for consumers to spread the cost of purchases without interest. This model proved a hit with younger, digitally-native generations and led to rapid market growth. However, recent economic shifts and tighter regulations have begun to squeeze margins and increase the risk of consumer defaults. The Financial Conduct Authority (FCA) in the UK, for instance, has introduced new rules requiring more rigorous affordability checks, which is set to take effect next year.
The Untapped B2B Opportunity
The B2B payments market is estimated to be several times larger than its consumer counterpart, presenting a massive opportunity for expansion. Unlike the impulse purchases that often characterise B2C BNPL, the value proposition for businesses is tied to cash flow management and working capital. Small and medium-sized enterprises (SMEs) often face challenges in accessing traditional credit, making BNPL a compelling alternative.
B2B BNPL providers essentially offer a modernised version of traditional trade credit. Instead of a buyer waiting to receive an invoice and pay later, the BNPL provider pays the seller upfront, while the buyer repays the provider over a set period. This provides immediate liquidity for the seller and financial flexibility for the buyer. This is particularly attractive to a new generation of business procurement managers who, raised on the seamless checkout experiences of consumer e-commerce, expect similar ease in their professional lives.
Challenges and Future Outlook
While the potential is clear, the B2B market presents its own set of challenges. The approval process is far more complex than for consumers, requiring thorough business verification and credit checks. Moreover, the average transaction size in B2B is significantly higher, often reaching into the thousands or even hundreds of thousands of pounds, compared to a typical consumer loan of around £100. This increases the risk for providers and necessitates a more sophisticated approach to underwriting and risk management.
Despite these hurdles, industry data suggests a strong future. The B2B BNPL sector is projected to grow rapidly, with a compound annual growth rate (CAGR) of over 27% between 2024 and 2029. As businesses continue to digitise their operations and seek more efficient ways to manage their finances, BNPL is poised to become an integral part of the B2B payment landscape. The move signals a strategic evolution for BNPL providers, shifting from a pure consumer-facing model to a broader financial services offering that addresses the needs of the entire economy.
This video provides an overview of how BNPL companies generate revenue.
