Buy Now, Pay Later Targets Trade Finance Deserts

The global trade finance gap now stands at an estimated $1.5 trillion, the Asian Development Bank has calculated, but banks and FinTechs have risen to the occasion.

Collaborators and innovators have accelerated their development of innovative ways to digitize trade finance workflows, overcome inefficiencies and enable companies — particularly small- to medium-sized businesses (SMBs) — to access the capital they need to buy and sell across borders.

It’s a critical initiative to supporting both the local and global economies, but with such a dramatic lack of trade finance available, addressing the need is going to take a mix of strategies.

In the Middle East, United Arab Emirates-based WeMENA operates a B2B eCommerce platform for SMBs in the region to procure goods and inventory from other businesses. Speaking with PYMNTS, the firm’s Co-founder Pali Banwait explained that indeed, a lack of access to trade finance can hinder B2B trade in the region.

But it’s not the only hurdle SMBs are facing. He discussed how the traditionally consumer-facing model of buy now, pay later (BNPL)can have a profound impact on the wholesale eCommerce landscape, and on companies’ cash flows where businesses operate in a trade finance desert.

“As they say, cash is king right now,” he said. “For small businesses, it could not be truer.”

Yet in the Middle East, access to trade finance to fund the necessary purchases businesses are making is “pretty much non-existent” for smaller companies, particularly those in the retail space.

“You’ll be surprised how many hurdles you have to jump [through] just to get a small overdraft facility for your business here,” he added.

As a result, although digital platforms exist through which companies can procure goods, many smaller companies lack the necessary capital to finance their buys. And while FinTech initiatives to lower barriers to trade finance can help, introducing a BNPL model that has become so popular in the consumer commerce arena was a valuable proposition for the WeMENA platform.

“BNPL in the consumer space has been around for a while in the UAE, however in the B2B space, it has been forgotten,” noted Banwait.

This payment option allows SMBs to pay in installments, thereby increasing their buying power and enabling them to expand the variety of their own inventory and elevate revenues.

Tackling Cash’s Dominance

The concept of “cash is king” should be taken literally in the Middle East North Africa (MENA) region, where cash remains a more popular method of payment over digital tools. In a 2018 report from PYMNTS, a survey revealed consumers are expected to make $1.4 trillion worth of cash payments by 2021.

For online wholesale and B2B eCommerce platforms, that reliance on cash is a particularly large hurdle to adoption and digitization of B2B trade.

Although FinTechs have stepped into the Middle East market to accelerate modernization in recent years, Banwait noted that red tape makes adoption of ePayment solutions like credit cards a headache.

“Bureaucracy has to be the biggest [hurdle to] getting paid,” he said. “To get a simple card processing solution for your store or online shop can take a couple of months. The paperwork is also quite laborious sometimes, too.”

Not only does this present a challenge for the companies looking to pay and get paid via card, it was a significant barrier to the launch of WeMENA, too. According to Banwait, the company applied to five different card processing companies — and only one was able to provide the firm with a credit facility.

“This has to change,” he said.

Supporting that effort to overcome such challenges is a proliferating ecosystem of FinTech collaboration. WeMENA’s ability to introduce a BNPL option on its platform is the result of a recently announced partnership with MENA-based Spotii, a digital payment platform working to reduce cash’s dominance in the region.

By combining efforts to digitize payments and commerce, broaden trade finance availability, and find novel ways to connect businesses to working capital, the MENA region’s financial services ecosystem has an opportunity to support SMBs and drive real economic growth.