A Lifeline for Struggling Businesses


Roughly 360 million people worldwide have used Buy Now, Pay Later (BNPL) services to fund their purchases. And according to Finextra, BNPL providers are seeking opportunities beyond the consumer market, focusing their efforts on businesses.  

Through BNPL, consumers are able to pay for their purchases in installments over a period of time. In a scenario where BNPL is used for businesses, this service model can be used to finance their operations, secure inventory, and even pay a supplier sooner than expected.  

BNPL financing could soon go head-to-head with traditional short-term business financing as credit terms with BNPL tend to be more advantageous. The downside to current traditional business financing is that it only offers a set credit limit, which offers no flexibility for businesses strapped for cash. Furthermore, other traditional financing sources such as credit cards and loans offer a one-month grace period, which soon after will tack on hefty interest to repayments.

For businesses with little to poor credit, their loan applications to banks and credit card companies are most likely to get rejected. However, with providers such as Klarna, credit checks are much less rigid. Therefore, the approval rates for installment-based credit are much higher. In these tough economic times, Buy Now, Pay Later financing may be a lifeline for struggling businesses.

“The use of BNPL data for credit scoring remains cloudy,” said Ben Danner, Senior Analyst for Commercial & Enterprise Payments and Credit Practices. “Some vendors do not report to the bureaus, and for those that do, only some products are reported. The major credit bureaus have yet to work out a uniform process. For example, Experian has a product called “BNPL Bureau,” but the data is kept separate from their core risk profiles while Transunion does not include BNPL in the core risk profile but collects the data in a report. This murkiness around scoring may drive merchants seeking credit improvement to different loan products.”

The rise in popularity of BNPL services as well as its ever-growing transaction volume has been covered by PaymentsJournal here.


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