The idea started in the B2C world, but it wasn’t long before online sellers were asking about its use for B2B — at least, according to Chris Tsai, co-founder and CEO of Resolve, in a new PYMNTS interview.
Resolve, a B2B payment services firm that spun off from Affirm, which provides point-of-sale (POS) financing to consumers via retailers, including Walmart. As he told Karen Webster, B2B payments offers some of the highest levels of friction in the payments world — friction that can lead to lost sales for suppliers, and massive frustrations for buyers.
However, Tsai’s work with Affirm — including via eCommerce and crowdfunding platform Celery — taught him the power of offering credit and other features at the POS, and how to turn that into “an amazing eCommerce conversion tool for online sellers.” As it turned out, merchants working with Affirm were talking up the same ideas to its CEO, Max Levchin.
What they desired, Tsai said, was a “B2B version of Affirm,” which offers customers the chance for financing at the retail POS, along with loan amounts often considered too small for commercial lending officers at banks.
B2B, in some respects, is the stubborn mule of the digital economy. It represents a massive source of economic strength — according to Forrester Research estimates, B2B eCommerce will reach more than $1.1 trillion by 2020. However, Tsai said “conservative-minded CFOs” in B2B, along with legacy supply chain technologies and processes, serve to slow down any progress toward new payment and transaction methods.
Every challenge, though, is also an opportunity, and that applies to B2B as much as any other area of endeavor.
The Resolve offering works as an automated payment platform, integrated into B2B commerce websites. To take part, buyers complete applications that are customized for their business types and sizes. Resolve then analyzes applications — using nontraditional commercial underwriting data, such as purchase history, to do so — to arrive at approval decisions regarding extended payment windows for those B2B buyers.
“We have a couple of tricks up our sleeves” when it comes to the credit approval process, he said — techniques that also take into account an applicant’s location and credit history to arrive at those decisions, and to evaluate the risk.
Power Of Terms
The key here is offering terms that will result in repeat offers and more customer loyalty from B2B buyers, which are attractive and lucrative for B2B suppliers. Like Affirm, Resolve does that by assuming the payment risk, and acting as the underwriter for the credit lines offered to B2B buyers via its platform.
According to Resolve and Tsai, buyers could end up paying zero percent interest if accounts are repaid within the agreed-upon terms. Suppliers receive full payment, minus fees, as soon as an order is placed — in fact, Tsai explained, payment takes place within one business day of an order. The cut taken by Resolve, he said, “is generally competitive with credit card” financing, though he declined to provide more details.
Those net payment terms can run for 30, 60 and 90 days, but Tsai told Webster that the “sweet spot” — the average term — is for 60 days via the Resolve platform. “It’s our recommended default,” he said, given its help in encouraging more sales and repeat offers.
Among the main problems with such payment offerings in the B2B world? As Tsai noted, a corporate mindset that can make it past legacy ways of doing things — or viewing the B2B world as more than the sum of its legacy parts. Many of those executives “get an earful from their sales teams or eCommerce marketing teams about the fact [that] they do not have net terms,” he said. “They are losing sales.” The trick in upgrading B2B payment offerings, he continued, is to view the costs of offering those terms as a “marketing expense,” and let the resulting sales pay for it.
So, who might be most attracted to this type of B2B financing conducted via digital channels?
Tsai said traction is coming from newer product categories, and companies hyperfocused on growth, “where growth is the entire theme of the industry,” along with companies that might even be benefiting from government subsidies. He pointed to LED light manufacturer Hyperikon, a Resolve customer, as an example of that. The company increased customer loyalty, conversion and revenue via offering extended net 60 payment terms.
As the future unfolds (not only the future of Resolve, but of smaller-scale, B2B lending in general), Tsai said the company fills a niche in which banks are often reluctant to take part — and that it will probably be a while before they do, given the conservative nature of many financial institutions.
“The thing that is very hard for financial institutions to figure out is small-dollar, high-frequency transactions,” he said.
However, those are among the main and most important transactions in the B2B world. If not financial institutions, someone else will handle them and innovate.