Louis Carbonnier is the co-founder and co-CEO of Hokodo where he leads the commercial strategy and product development of the company’s B2B Buy Now, Pay Later solution.
The coronavirus pandemic has had a monumental impact on most – if not all – business sectors and the wider economy. With all but essential stores closed for business and shoppers confined to their homes for months on end, it’s little surprise that retail was one of the most heavily impacted industries. During the first month of the pandemic, retail sales in the UK dropped by 18% month-on-month and total retail sales across the year experienced the largest annual decline on record.
Stock sat on shelves or in warehouses for much longer than usual as consumers, fretting over the uncertainty of the future and unable to shop physically, held back on non-essential purchases. Eventually, many shoppers began to turn to short term lending options like Buy Now, Pay Later (BNPL) in order to spread the cost of purchases that they might otherwise have been unable to afford.
Shoppers were also attracted by the opportunity to test their purchases out before paying for them. In a world without physical stores and fitting rooms, BNPL gave customers the chance to try the items they had ordered before being charged by the merchant. If a purchased product didn’t suit or fit, shoppers wouldn’t be stuck waiting days or weeks for a refund.
For many consumers, this was a first taste of embedded lending and, although BNPL was a saving grace for them, this unregulated form of financing has a patchy reputation at best. However, it may be just this kind of embedded finance that helps B2B marketplaces and their retailer customers to pull through in the tough economic climate that the pandemic has created.
Embedded Finance in B2B
A growing number of B2B marketplaces are now implementing various embedded financial services tools within their online platforms in order to increase sales and stimulate growth.
One example of this is the implementation of embedded payment options like digital wallets and PayPal alongside the more traditional methods like credit cards and direct debit, allowing them to serve a greater number and variety of customers. This benefits marketplaces as they’re able to make more sales and win new customers, while the small businesses buying on these platforms benefit from paying in the way that is most convenient to them.
Similarly, embedded lending options such as Buy Now, Pay Later are helping marketplaces to provide their business customers with the flexibility and payment terms which they desire and deserve. The customers benefit from being able to defer payment by 30, 60 or 90 days, while marketplaces get paid immediately and protect themselves from risk by working with a reputable B2B BNPL provider. Both parties experience improved cash flow and are thus able to focus on what matters most: selling more and growing their respective businesses.
Meanwhile, insurance is another traditional financial service experiencing the reinvigoration of embedded technology. Before, buyers wishing to insure a new purchase would have to endure the often tedious process of finding the best insurance product available after they’ve already spent time and effort sourcing and buying the product in the first place. Now, embedded insurance products can be found and added on at the point of purchase with relative ease.
A typical example of embedded insurance for consumers can be found in travel, when we’re offered travel insurance when purchasing a flight or train ticket. However, there are also important use cases for embedded insurance within B2B. For example, buyers purchasing stock or materials from overseas may get the option to add cargo insurance to their order at the point of sale, in order to protect against the risk of loss of or damage to goods during transit.
Ultimately, all of these embedded finance solutions help marketplaces to boost sales and win new customers who remain loyal because they benefit from an enhanced purchasing and payment experience.
As time goes on it’s likely that we will only see an increasing number of these embedded finance solutions and services utilised by marketplaces, both within consumer and business markets. Savvy startups will continue to innovate in the space, creating better user experience (UX) and stimulating growth for buyers and sellers alike.
Over time, the adoption of embedded finance tools and solutions will spread from cutting-edge marketplaces – which make up an estimated 20-30% of online sales – to regular merchants looking to sell online.
As embedded services like payments, lending and insurance become ‘the norm’ within B2B e-commerce – as they have in recent years within B2C – the marketplaces not offering them will almost certainly fall behind and lose out on customers and revenue to their more tech-enabled and future-proofed competitors.