Visa’s Koenigsberg Says Small Businesses Are Ready to Embrace BNPL

In the global view, small businesses aren’t so small. They represent 90% of all businesses and more than 50% of employment globally. And in emerging markets, they are contributing 40% of GDP.

Those stats from the World Bank underscore the need for these smaller companies — the sole proprietorships, the Main Street shopfronts, the firms with dozens, or perhaps as many as 100 employees — to have consistent access to credit and access to working capital that helps them grow and power their local and national economies. And they also need access to new products that their larger peers have used to their advantage, including credit and buy now, pay later (BNPL).

But there’s a problem. As Alan Koenigsberg, SVP and global head, Large & Middle Market Commercial Solutions, Working Capital and Embedded Finance at Visa, told PYMNTS Karen Webster, in many cases small businesses are underserved from a credit perspective. For the traditional and larger lenders — the big banks especially — extending credit tends to favor larger clients, the investing banking clients that are already in place. That’s not to say that the small and mid-sized business (SMBs) portfolios are not important. They are. But lending to those smaller firms means taking stock of different credit profiles of startups’ failures and risks — and honing a different skillset to identify what smaller firms’ credit needs might be while balancing against lenders’ underwriting criteria.

Context matters where the right credit options are offered, at the right time, to the right SMBs and owners. Many of them are Gen Z and millennials, and expect to have digital offers readily accessible right at the point of sale, including BNPL.

There’s a payoff for the lenders too. As Visa and PYMNTS Intelligence found in the “Embedded Lending: From the Lender’s Perspective” report, companies’ satisfaction with embedded financing can be quite high — about 21% higher than had been seen for companies that got credit but had to go “outside” of the transaction to get approval, and then get back to the transaction to proceed.

Embedded offerings — tied intimately to platforms and software, to business-facing interactions that offer a range of payment options right in the moment — can help level the playing field of credit access. Embedded finance is not exactly new. As Koenigsberg said, the act of taking a financial product and putting it inside nonfinancial conduits started decades ago, with the rise of eCommerce. 

In the current environment, Koenigsberg said, BNPL options are proving especially popular. Embedded BNPL, he said, is akin to “injecting an opportunity for a small business to be able to take advantage of a feature that’s helping many consumers — and many businesses — around the world.”

And, he said, “BNPL winds up being about advocacy — about the small business taking the bull by the horns and saying, ‘I can actually provide myself with incremental working capital by splitting up those transactions’ — and that’s powerful. It’s not a loan per se, it’s about those firms conducting procurement and paying the way they want to pay.” Paying in four installments, he said, helps SMBs plan ahead versus being obligated, in one month, to pay down an invoice, or tackle a credit card bill, in its entirety.

Spreading the Word on BNPL

Visa, in sharpening its business lending advisory and solutions offerings, has been investing in its middle-market business to help their banking clients learn more about the inner workings of working capital, to help embed BNPL into their own client-facing interactions with those SMBs, and to educate them about the availability in the first place — they are often already aware of BNPL, having used it in everyday consumer commerce.

The advisory efforts and the outreach are critical in bringing SMBs and lenders together, and as Koenigsberg said, “Standing up a two-sided network takes time — and that comes typically from marketing, which comes from the FI [financial institution] or merchant the SMB is working with.”

For Visa, he said, “Our job is to democratize, for our financial institutions, the way we go to market … and that’s the value of taking our investment dollars and capex [capital expenditure] dollars and investing  … across our ecosystem.”

As the BNPL industry grows, Koenigsberg said, and becomes more visible to SMBs, “The biggest benefit will go to that group of people that is at the heart of the American — and the global — economy.”