Small Businesses: How Merchant BNPL is Making Small Business Owners’ Lives Easier


Customers and investors were enthusiastic about Buy Now, Pay Later (BNPL) and fintechs such as Affirm, Klarna and AfterPay recorded high ratings and customer flows worldwide. Now, Merchant BNPL is becoming mainstream credit for small businesses as they shop with suppliers. Business owners want the real-time credit experience that consumers have.

The business-to-business (B2B) market in India is developing rapidly. India’s retail market was valued at $ 883 billion last year, with grocery retailing at $ 608 billion, according to Forrester Research. The market is expected to reach $ 1.3 trillion by 2024. In particular, mom and pop stores make up around 75% of this retail market, selling everything from groceries to clothing to electronics and everyday necessities.

New opportunities

Here are some emerging trends that will set the wheels in motion for Merchant BNPL:

  • Small business owners do without paper and manage procurement, logistics and finances digitally, which makes things more efficient. This trend has been accelerated exponentially by the pandemic.
  • Credit at the time of the transaction becomes a reality. Much like how UPI made payments easy and real-time, centralized data and API infrastructures such as GSTIN and AA enabled similar innovations in retailer financing. It is known as “embedded funding” when credit is available at the time of the transaction.
  • It generates electronic payments, e-commerce lists, transactions, ratings, and other digital and reliable data prints that enable faster drawing of small-ticket credits.
  • Logistics innovations enable brands to pursue a direct-to-retailer strategy through just-in-time service and supply chain fulfillment.

What is dealer BNPL?

This is a type of short term credit offered to small businesses when they purchase a product or service from their suppliers. The lender prepays the supplier and the loan is usually repaid by the small business owner within 15-60 days. The seller, who can be a brand, a distributor, an aggregator platform or a digital B2B marketplace, usually pays the interest for this duration.

This was formerly known as dealer credit or dealer finance. The fundamental difference is that unlike dealer / dealer finance, BNPL uses a range of data and the latest technology to enable real-time credit via digital travel. In addition, the average loan amount granted under BNPL tends to be lower initially and increases when borrowers show good repayment behavior.

Since the borrower (in this case, the small business owner) can only use the money to shop at their supplier, this typically involves much less credit risk than unrestricted use of funds that could potentially be spent on non-revenue generating purposes. use. Merchant BNPL is also known as In-Purchase Financing / SME BNPL / Shop Now Paid Now.

A win-win situation for everyone

Sellers get the money in advance, dealers get the goods and services without prepayment, and lenders get a customer who can receive a larger loan with a clear volume multiplier effect in the future.

This model connects three main players in a product’s life cycle: the brand / big business / B2B marketplace / seller who wants to reach as many distributors as possible, the distributors who want to buy goods / services on credit, and a lender who does so wants to offer a low risk loan and get a customer. Partnerships between lenders and suppliers are critical to a smooth and successful checkout process.

BNPL product companies typically use an embedded financing solution where the BNPL provider is on the supplier platform. So for SMBs, this is just another payment mechanism to complete their purchase and get a loan. As a result, the BNPL provider offers the opportunity to build a white-label platform that can connect to multiple providers, which will aid market penetration and ultimately a more robust credit ecosystem.

Its scope

There are six million MSMEs in India and each of them needs or will need loans to meet their working capital needs or grow their businesses. Real-time credit is now possible thanks to the tailwind of data innovations, digital transactions, and supply chain innovations. Merchant BNPL is the ideal solution for small businesses looking for a digital native credit / checkout experience and their suppliers looking to increase sales.

Many platforms will emerge in the years to come, and this product will make up a significant portion of the short-term trader credit. The next game changer for companies will be purchase finance.

(The author is co-founder of

(ET RISE, the one-stop shop for MSMEs, provides news, views, and analysis related to GST, exports, finance, politics, and small business management.)

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