BNPL Is the Working Capital Bridge for African SMBs

There’s a huge gap in working capital financing for small- and medium-sized businesses (SMBs) in emerging markets across Africa, estimated at about $340 billion by the World Bank. And to help keep businesses afloat, most business-to-business (B2B) firms are tackling the problem by providing cash-based solutions to SMBs.

Read more: FinTechs Think Big to Help Africa’s SMBs Find Working Capital

But according to Yele Oyekola, co-founder and CEO of Africa-focused B2B payments platform Duplo, thinking only in terms of hard currency when it comes to working capital is not enough, as he pointed to the need for buy now, pay later (BNPL) for business to effectively tackle the problem.

“We’re [launching] a B2B buy now, pay later [product because] we don’t want to give businesses just cash. We’re basically financing their payments because that’s also how you make payments as well,” Oyekola told PYMNTS in an interview.

With this strategy, Duplo can finance the payment of a vendor invoice on behalf of a business, after which the merchant will pay back based on the terms offered.

“It’s not really a loan that’s going into your bank accounts, we’re basically financing that transaction,” he noted, adding that BNPL is meeting a greater need as an increasing number of businesses want to be able to pay invoices later and settle payments upfront.

Read more: The Next Trillion-Dollar BNPL Opportunity

Today, the young firm, founded in 2021, helps clients in the distribution space such as merchants, aggregators and distributors operating in cash-heavy markets across the region to streamline and digitize their payment flows and generate or pay invoices.

Related news: Nigerian B2B Payments Startup Duplo Raises $1.3M

The Nigeria-based B2B payment digitization startup, which has plans to expand into other business sectors including travel, agriculture and beverages, also recently raised $1.3 million in pre-seed funding towards its growth expansion plans.

B2B BNPL Customization Is A Must

According to Jamie Beaumont, CEO at U.K.-based BNPL firm Playter, the trend of simply copy-pasting the business-to-consumer (B2C) BNPL model into the B2B space is an ineffective strategy that does not meet the needs of SMBs.

Oyekola is of a similar view: “[There are] different terms and rules that businesses must comply with or have in place, and you can’t just copy and paste what’s currently happening with B2C [to] B2B.”

Learn more: To Avoid Failure, BNPL for Business Must Be Customized, Not Cloned

Another reason why B2B BNPL must be customized and not cloned is that businesses deal with much larger transactions than the typical consumer, and each business has its own unique invoicing system and payment cycles, he explained.

And while the service for consumers cannot be copied to suit businesses, there is also the added challenge of tailoring it to each business and sector, which can make BNPL for business a difficult undertaking.

“You can’t do a one size fits all for B2B buy now, pay later. You have to customize constantly, for different businesses and different industries as well. For example, in the construction industry, the way they send invoices is incredibly different from the way they send them in the medical services industry,” he noted.

Data, Risk in B2B Payments

Beyond the need for flexibility, managing risk in B2B payments also presents challenges for FinTech firms.

In the case of Duplo, which is currently piloting BNPL services, the evolution of its business model, from focusing strictly on payment solutions to essentially becoming a lender, can easily open the door to issues around non-payment and fraud.

But according to Oyekola, mimicking the lending strategy their wholesale and distribution clients have adopted with their retailers in the case of non-payment — basically withholding their goods — is working well for them as they pilot the model with a few of the latter in their home market of Nigeria.

Moreover, these wholesalers and distributors have “years and decades of data” that they’ve gathered in their relationship with their retail clients that they can leverage to make appropriate lending decisions.

So, the process is simple. Wholesale clients of Duplo can offer financing to their small retailer clients, who can then create an account and apply for a loan from the wholesaler on the platform.

What makes the model “bulletproof” per Oyekola is that “if these [small retailers] don’t pay Duplo back, our client [the distributor] won’t supply them their goods for the next cycle, for example, and that I think will be a massive differentiator for us.”

Sign up here for daily updates on all of PYMNTS’ Europe, Middle East, and Africa (EMEA) coverage.