While Klarna and Affirm bear the brunt of a global economic downturn, B2B BNPL is thriving.
In June 2021, Klarna raised $640 million at a mammoth valuation of $45.6 billion. The stunning raise cemented Klarna’s position as the crown jewel of a thriving European fintech ecosystem that had seen its fortunes accelerate as a result of the pandemic.
But what a difference a year makes! The darling of Europe once again closed a funding round this year, this time collecting $800 million. If in 2021 endless suitors probably threw money at Klarna, this time round the story couldn’t be more different. First, we had reports it was seeking to raise at a $30 billion valuation. A cool 35% shaved off its valuation. Disastrously, even that didn’t seem to peak the necessary interest.
In the end it took an 85% discount – a valuation of $6.7 billion — on Klarna’s 2021 highs for investors to cough up the latest tranche of cash. The news of course sent the fintech industry abuzz, with many questioning (or defending) the long term future of BNPL amid a bleak looking economic and regulatory environment.
Yet, just as BNPL goes through a very public existential crisis an offshoot is thriving.
Enter B2B BNPL
Just like Klarna, B2B BNPLs offer short-term lending to consumers at the point of sale, allowing buyers to spread the costs of payments, while merchants make their sale and get their money upfront. Only this time the focus is on business.
The comparisons don’t stop there. Just like BNPL, B2B BNPL isn’t exactly new. Department stores began offering private-label credit cards and buying options for consumers in the 80s. Likewise, companies have utilized short term credit for decades. B2B BNPL is a natural evolution of this. As with digital products, it can be delivered at the point of sale (across channels) quickly and efficiently.
The impact of access to capital for small businesses can’t be underestimated. It’s an issue exacerbated on the one hand as a result of declining lending to SMEs from banks. Something that’s likely to continue in the near future as recessionary concerns put lenders’ guards up. And on the other, SMEs are waiting on payments from customers. In the UK alone 58% of SMEs say they are waiting on late payments from customers, according to research by Barclays.
From this perspective the attraction of BNPL for SMBs is clear. For B2B BNPLs the opportunity isn’t tiny either. Business consumers typically purchase more complex products than retail ones, which means ticket sizes are also likely to be significantly more – up to 10 times more in fact.
Investors have clearly bought into the potential of B2B focused BNPL plays, with a number of players in Europe and the US having raised millions of dollars from investors. One of Europe’s biggest such players is Billie, which struck up a significant partnership with Klarna in October 2021 to leverage the Swedish giant’s existing footprint. And it’s gone from strength to strength in recent years, with a current valuation north of $600 million and Klarna among its backers.
And Sweden continues to be the BNPL accelerator with Juni another alumni raking in more $200 million in equity and debt funding back in June. Other notable mentions include Berlin-based Mondu and London-based Hokodo, which have both raised fresh capital in recent months.
Europe isn’t the only place these players are flourishing either. Last December, San-Francisco based Resolve, which was spunout of Affirm, announced it had snagged $25 million. A month prior, São Paulo-based peer TruePay announced it had closed a $32 million round.
That’s all to say that the B2B BNPL space is already hot on the radar of investors. With the short-and-medium term economic outlook appearing precarious, it’ll be an interesting time for these players. More and more businesses are likely to need greater access to capital to see them through, adding to the long line of potential customers for B2B BNPLs. Plus, add in the large upside of facilitating a few loans to companies instead of thousands to retail customers, the future looks bright for these players – and it’s certainly a space we will be keeping a close eye on.