Instant Credit and purchase financing products are currently seeing an all-time high consumption rate with recent fads like “Buy now, pay later” or BNPL, which is the new infatuation of every payment fintech, not just in India but across economies. Instant credit as a financial product is available in various forms today: small-ticket offerings by fintechs on consumer checkout platforms; financing products offered on marketplaces like Amazon Pay Later; and as extended loan variants by companies that want to increase consumption.
So far, innovations on purchase financing have mostly occurred in the consumer retail segment and people—especially NTC (new to credit) customers—have accepted most of them as their go-to payment enablers for online shopping. However, the corporate segment still stands left out from the standpoint of innovative credit options available for digital business payments.
With the rapid growth of e-commerce seen in the last decade, digitization has mostly appeared in the B2C space. After a massive behavioural overhaul led by B2C e-commerce, entrepreneurs are also taking B2B commerce online. According to a 2019 report by RedSeer, India’s B2B e-commerce market is expected to outgrow B2C e-commerce with a compound annual rate (CAGR) of 80 per cent. As per the report, it is expected to reach $60 billion by 2025. SMEs and Startups are heavily adopting online platforms and marketplaces to procure their goods and services and are also conducting many of their other business affairs online. Thankfully, with the advent of UPI, most merchants and businesses have gone digital for their B2B payments such as vendor payments, utility payments, etc. Although, the only missing link to integrate the fragmented digital B2B invoicing is a ‘credit option’. It’s time that fintech companies also further innovative ‘pay-later’ options for the digitization of the B2B payments space.
Unlike consumers, businesses buy goods and services to eventually trade them or sell them to others down the value chain. This process has a certain time cycle attached to it. A longer sales cycle means tighter cash flow, which means that many businesses require credit payment options when buying inventory or paying for utilities online. As B2B commerce scales and grows through digital means, SMEs and startups need an innovative credit tool that could cater to their business needs and elevate their growth by eliminating the burdens extended by liquidity issues.
The existing PoS credit products offered for the consumer segment are extremely fragile to endure the complexity of a business supply chain, and hence cannot be replicated in digital B2B payments. This is due to various reasons:-
- They cannot function for big-ticket amounts that prevail in business transactions
- Most of them are not regulated by any network and hence kindle the threat of creating a debt trap
- They do not resolve crucial business bottlenecks such as low transactional visibility, centralization of business spends, and complex audit trails
For businesses, the ecosystem needs a more versatile credit instrument such as Corporate Cards, which could integrate the crucial components of business transactions.
To argue, corporate cards are a rather old payment tool, nonetheless, traditionally the uses of corporate cards were mostly limited to business travel and lodging expenses. However, the new-age corporate cards extended by growing Fintech-bank partnerships—as an advanced payment tool—cater to most B2B payment requirements. They have evolved into being employed for multiple use cases, from Working Capital to Marketing, Payroll, E-procurement, Subscription & Services, Cloud, Supplier/Vendor Payments, Taxes, Travel & Lodging, Food & Beverage, Rental, Utility, and more.
How can they be instrumented as a PoS Credit product?
Corporate cards exist in various forms such as Purchase Cards (P-card), Corporate Credit Cards, Prepaid Cards, etc. They entail credit lines that can be customized and issued as per the requirements of a business and can be instrumented to make payments in credit.
Unlike the case a few years ago, businesses do not have to spend their time and energy following the traditional norms and procedures every time they need a new corporate card. Fintech card companies have brought these legacy frictions to zero. Owing to this, once associated with a card issuing company, businesses have complete control over the issuance of a new card for any of their requirements, to any employee or department – within a few minutes. This also enables the much-required decentralization of spends (employees at all levels, across geographies, could spend independently) while keeping the issuance authority under the control of the business owner/CFO.
Reasons corporate card is the tool that can embed ‘credit’ in the digital B2B payment puzzle
- Flexible issuance; no more standard billing cycles
- Cash Flow & transaction data based credit underwriting; no more standard underwriting
- Digital processes for card issuance in an hour; no more 45 days TAT
- Open accessibility for NTC (new to credit) customers; no more standard eligibility criteria
- Standard interest rates on revolving credit; no more 36-42% charges
- Universal acceptance; card networks add network effect on the distribution
- Higher credit limits; flexibility to convert in EMIs of chosen tenure
- Feasibility to have SKU (stock-keeping unit) level data detailing; different levels of processing
Views expressed above are the author’s own.
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