Inflation has brought more
To address this demand, this month the business-to-business payment firm Melio launched Pay Over Time, a credit option that enables small businesses to pay vendors and other bills in monthly installments, while the billers get paid in full. Melio, which is working through the business-credit provider Credit Key, lends up to $50,000 to businesses via their existing Melio account payable over 12 monthly installments. Melio is one of several firms that are offering BNPL to businesses while trying to avoid some of the
Melio, which was founded in 2018, has gradually added financial services to diversify its offerings. It recently entered a partnership with Shopify that enables U.S. merchants to pay and manage bills via their Shopify administrative page. Melio has also partnered with
Melio is positioning its move into BNPL as a way for merchants to access capital without resorting to traditional loans or credit cards in a high-interest environment.
"We're not encouraging businesses to buy more, which is the criticism of BNPL for consumers," said Matan Bar, co-founder and CEO of Melio. "This is more about working capital for businesses, to better align their revenue and spending."
Before founding Melio,
Melio is attempting to further streamline merchant credit by embedding the BNPL option directly into its existing payment gateway as a button at the point of sale.
"We've made it part of the workflow," Bar said. "It works like a consumer BNPL loan that way. Or you can choose an option like Affirm or another BNPL lender right at checkout. The BNPL option in this case is contextual."
Melio uses the payment and other financial data it has accumulated on its clients to underwrite the BNPL lending and produce the terms, including Melio's fee.
BNPL for businesses is relatively new and comes as consumer BNPL fintechs have
"The cost of getting paid is different when rates are above 5% instead of at zero," said Phillip Kelvin, co-founder and CEO of Tranch, a fintech that sells a mix of payment processing and a version of BNPL in which Tranch pays for software, subscriptions and other supplies upfront, then collects from the merchant in installments for a fee.
Tranch's clients include law firms that offer Tranch's services to their own clients to spread out the payment of legal fees.
"There's pressure on the legal industry in a recessionary economy to collect fees," Kelvin said. The pandemic led law firms and other businesses to reduce their use of checks, he said, but economic pressures are now creating a need for billers to find creative ways to get paid while buyers seek to manage their cash positions.
B2B BNPL is in some ways a faster digital form of invoice management that has always existed. In B2B payments, businesses have long managed seasonality and default risk by selling invoices to third parties for a fee, said Malte Huffmann, co-CEO and cofounder of Mondu, a business payment firm that offers B2B buy now/pay later lending.
"BNPL for business is not about unplanned purchases but rather a way to ensure business continuity and growth," Huffman said.
In an environment of higher inflation and higher interest rates, the BNPL product becomes more attractive for merchants because their customers benefit even more from the flexible payment terms, according to Huffman. Two of Mondu's co-founders previously built Dafiti, a merchant business in Brazil and Argentina, countries characterized by high inflation and high interest rates.
"Based on the current market, there is a higher demand for our product in the short term," Huffman said, adding that Mondu manages its risk in-house. The risk team is led by Eric Weijman, Mondu's chief risk officer, who
Increasingly, B2B marketplaces are integrating BNPL product offerings by offering financing through a third-party provider, or building their own system directly with a lender to extend point-of-sale credit, said Benjamin Nestor, a senior associate at Datos Insights.
"Much of this will probably be geared toward lower price point transactions and higher-volume routine transactions," Nestor said. "Many of the largest BNPL providers may end up moving into B2B to bolster some of the decline in consumer spending."
High interest rates function as a driver for BNPL but also have produced some challenges for the providers.
"The low interest rates (if paid on time) can be a major driver of small businesses and startups utilizing B2B BNPL products, since they are avoiding the high interest rates available elsewhere," according to Nestor. "On the other hand, many of the BNPL providers have struggled, relatively speaking, since rising interest rates make it harder to fund loans."
