As Consumer-Oriented BNPL Struggles, a Business-Oriented Model Emerges

Shoppers Rethink Buying on Credit

Buy now, pay later (BNPL) schemes took off during the pandemic, when house-bound consumers increasingly turned to online shopping and deferred payment on purchases with a couple mouse-clicks. Now, amid soaring inflation, rising costs of debt servicing, and recession worries, consumers are starting to think twice before buying things on credit.

At the same time, regulators are eyeing the programs amid concerns over rising consumer debt and its potential to destabilize the economy. These trends are starting to be reflected in the valuation of companies that offer BNPL programs, such as Klarna and Affirm (AFRM).

European Start-Ups

A different approach is gaining traction in Europe. BNPL companies like Mondu, Hokodo, and Billie are shifting the original model’s focus away from the consumer in favor of targeting businesses. Industry analysts believe this approach could prove to be more profitable — in part because the B2B market is bigger.

The companies seek to provide an alternative form of short-term financing that could provide fast and flexible access to liquidity that may be particularly helpful given ongoing supply chain disruptions. This may be especially true for small to medium-sized organizations that may be rebuffed by banks.

Investors Are In

Venture capitalists and private equity investors seem to see potential in the BNPL space. These include the likes of Peter Thiel’s Valar Ventures and Notion Capital, both of which recently invested millions in European B2B startups.

Businesses looking for a nimble solution may cheer the new options. Still with a potential recession looming, these companies will need to weigh the risks of accumulating potentially harmful levels of debt — as will consumers.

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