At MarketFinance we’re committed to facilitating frictionless finance to power business transactions. We believe there’s still too much friction that stands in the way of businesses buying and selling, and having working capital on hand to grow their operations.
Now, with the snowballing of new B2B online marketplaces, there are new digital ways for businesses to buy the stock and goods they need. So embedding better payment options at checkout is a key way to help improve working capital. Below I’ll explain what B2B marketplaces are and how embedded finance is helping to ease the burden for both sides of the transaction process.
Business-to-Business (B2B) marketplaces are digital platforms where businesses offer their products or services to other businesses. Think of them like Amazon, but exclusively for specific industry verticals. They create “self-serve” and curated environments that allow companies to trade with other businesses they might not otherwise have connected with directly. Buyers get choice, value and greater efficiencies, while sellers ease the burden of marketing or logistics. They create a digital safe-space for business e-commerce by making transactions simpler and more transparent.
While consumer marketplaces are widespread, many B2B marketplaces are still in their infancy, but with bright growth prospects ahead of them. Over two thirds of B2B businesses saw their e-commerce sales grow by at least 25% during the pandemic as traditional bricks and mortar businesses had to explore other ways to reach new customers.
Today, 73% of millennials in the workforce are making buying decisions for B2B businesses. As tech native consumers they want B2B suppliers to provide the same seamless buying experience they're used to. This has fuelled a recent explosion in B2B marketplaces and improvements to e-commerce infrastructure. In Europe alone there are now over 300 B2B marketplaces, up from just 20 in 2010. The majority were started within the last five years, and span industries as diverse as IT equipment, building materials, food & drink wholesalers, recruitment and machine tooling.
While many marketplaces might only have Gross Merchandise Value (GMV) of £10-20 million today, they all have growth plans to 2-3 times GMV this year. Fast forward 5-10 years, and I believe £billions worth of B2B transactions will be flowing through their platforms. In fact, a new study predicts that B2B marketplaces will account for 30% of all global online B2B sales by 2024. These will be worth an estimated $3.6 trillion of GMV compared to just $680 billion in 2018.
As with all new technologies, the two-sided-marketplace has many challenges to overcome. This is especially true as they scale quickly and take on accepted industry practices when it comes to payment and credit terms. In the consumer world, marketplaces could simply integrate Stripe or other card processors to suit their checkout payment needs. In the B2B environment, buying and procurement traditionally operate on a much more personal level, with complicated email-heavy processes.
Marketplaces need to match industry standard terms, such as 30 or even 90 day terms, to attract buyers in the first place. This creates a nightmare of managing buyers’ credit terms and payment collections, and requires them to take on credit risk with large orders. Marketplaces get into danger if they try to make themselves more attractive to and retain the best businesses in the industry by paying earlier. This leaves them walking a tightrope of managing cash flow, liquidity and credit risk that can strangle growth.
To tackle these problems, B2B marketplaces need to embrace innovative payments solutions that provide a secure and intuitive way to checkout. Making sure the transaction is secure for the seller as well as offering favourable payment terms to the buyer is a crucial step in building online trust. By embedding cutting-edge finance options such as paying later or with better credit terms within the checkout journey, marketplaces can match and beat buyers’ other purchasing options offline. Embedded finance also lets them avoid the hassle of managing credit or impacting their balance sheet themselves.
The good news is that there are a number of fintechs, such as MarketFinance, who are focused on embedding the right finance options for B2B marketplaces. With a long track record in risk management and access to the funding to accelerate the implementation of payment options, we’re well placed to make this happen. By partnering, B2B marketplaces can fasttrack and supercharge their growth as they stay focused on matching buyers with sellers and taking market share.
Do you run a B2B marketplace? If you’re interested in offering a buy-now-pay-later option for your business customers get in touch with me on firstname.lastname@example.org or find out more here.