Small Business: How Merchant BNPL makes life easier for small business owners

Customers and investors alike were excited about Buy Now, Pay Later (BNPL) and fintechs like Affirm, Klarna and AfterPay had seen high valuations and influxes of customers around the world. Now, Merchant BNPL becomes the primary credit for small businesses when buying from suppliers. Business owners want the real-time credit experience that consumers have.

The business-to-business (B2B) market in India is changing rapidly. According to Forrester Research, India’s retail market was estimated at $ 883 billion last year, and retail groceries were worth $ 608 billion. The market is expected to reach $ 1.3 trillion by 2024. Notably, “mom and pop” stores make up about 75% of this retail market, selling everything from groceries to clothing to clothing. electronics and basic necessities.

New opportunities

Here are some emerging trends that will shake things up for Merchant BNPL:

  • Small business owners are ditching paper and managing procurement, logistics and finance digitally, making things more efficient. This trend has been accelerated exponentially by the pandemic.
  • Credit at the time of transaction becomes a reality. Just as UPI made payments simple and in real time, centralized data and API infrastructures such as GSTIN and AA enabled similar innovations in merchant financing. It is called “integrated financing” when credit is available at the time of the transaction.
  • Electronic payments, e-commerce listings, transactions, ratings, and other digital and trusted data fingerprints are generated, enabling faster underwriting for low cost credit.
  • Logistics innovation enables brands to pursue a direct-to-retail strategy through just-in-time service and supply chain execution.

What is the BNPL trader?

This is a type of short-term credit offered to small businesses when they purchase a product or service from their suppliers. The lender pays the provider up front, and the loan is usually repaid by the small business owner in 15 to 60 days. The seller, which can be a brand, distributor, aggregation platform, or digital B2B marketplace, typically bears the interest for that duration.

This was previously called distributor credit or dealer financing. The fundamental difference is that BNPL, unlike dealer / distributor financing, uses an array of data and the latest technology to enable real-time credit on digital journeys. In addition, the average amount of credit granted under BNPL tends to be lower at the start and increases as borrowers demonstrate good repayment behavior.

Since the borrower (in this case the small business owner) can only use the money to buy from their supplier, this usually comes with a much lower credit risk than unrestricted use of funds. that could potentially be spent for non-income generating purposes. use. The BNPL merchant is also known as Purchase Finance / PME BNPL / Shop Now Paid Now.

A win-win situation for all

Sellers get the money up front, retailers get the goods and services without having to pay anything up front, and lenders get a customer who can get a bigger loan in the future, with a clear volume multiplier effect.

This model brings together three key players in the life cycle of a product: the brand / large company / B2B marketplace / seller who wishes to reach as many traders as possible, traders who wish to buy goods / services on credit and a lender who wants to offer low risk credit and gain a customer. Partnerships between lenders and providers are essential to create a smooth and successful payment journey.

BNPL product companies usually use an integrated finance solution where the BNPL provider is on the provider’s platform, so for the SME this is another payment mechanism to complete their purchase and get credit. . As a result, provider BNPL creates an opportunity to create a white label platform that can connect to multiple providers, facilitating market penetration and, eventually, a more robust lending ecosystem.

Its scope

There are six million MSMEs in India, and each of them needs or will need credit to manage their working capital needs or grow their business. Real-time credit is now possible thanks to the tailwinds of data innovation, digital transactions and supply chain innovation. Merchant BNPL is the perfect solution for small businesses looking for a native digital credit / payment experience and their vendors looking to increase sales.

Many platforms will emerge in the years to come, and this product will represent a significant portion of short-term merchant credit. The next game change for business will be a purchase finance point.

(The author is co-founder,

(The one-stop destination for MSMEs, ET RISE provides news, insights, and analysis on GST, exports, finance, politics, and small business management.)

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