Five reasons credit providers should sell on marketplaces
Digitisation is changing the face of financial services. Not only has it allowed the industry to simplify and automate paper-heavy processes, it has also birthed an array of entirely new, digital-first players. In the credit sector, digitisation has created a tremendous opportunity to tap underserved segments, and incentivised healthy competition between credit card companies, traditional credit providers such as banks or invoice discounters, and newcomers like peer-to-peer credit platforms.
But just as players start to get used to selling digitally, a new business model is, yet again, pushing them out of their comfort zone. In the past three years, the marketplace sector has exploded: growing from a few well established players like Amazon and Alibaba to hundreds of specialised B2C and B2B platforms, and attracting even the most traditional retailers. In 2019, the top 100 marketplaces accounted for 58% of US$2.86tn global e-commerce market, meaning that for the first time in history, more online sales took place on marketplaces than on traditional e-commerce sites.
Some marketplaces are already offering credit lines to sellers and buyers on their platforms, which they either provide themselves, or on behalf of other lenders. But there is still ample opportunity for a wide array of credit providers to grab a slice of the marketplace pie. If you are still on the fence, consider these five reasons to jump on the bandwagon.
1. Go where your customers are
Marketplaces are fast becoming consumers’ favourite way to shop: on such platform, they enjoy an enormous variety of products, which they can easily compare to get the best deal. In turn, this is changing companies’ shopping habits, too. Procurement marketplaces are increasingly popular, matching large purchasers’ individual shopping preferences, and allowing them to pre-negotiate prices and terms with their suppliers. Additionally, marketplaces are giving market access to millions of SMEs around the world, with no need to set up expensive marketing or payment infrastructure. In the EU alone, 42% of SMEs sell on marketplaces. So whether you sell credit to large multinationals, midsize exporters or local SMEs, your customers are marketplace users.
2. More data, more efficiency
There is one major benefit in selling credit on online marketplaces: data. Depending on how long they have been around, marketplaces have access to an incredible wealth of buyers and sellers’ payment and behavioural data: who they do business with, how much they spend, how long they wait to pay. Arguably, this information can paint a much better picture of a borrower’s profile than the few tax returns and financial statements usually required in loan applications. This has the potential to unlock billions in previously denied credit. Take Payoneer: in 2019, the payment platform launched the marketplace arm of its Capital Advance working capital solution, whereby credit decisions are made exclusively based on a customer’s marketplace sales data. Clients can request up to US$/£50,000 per store, every 30 days, and repay the loan automatically when incoming payments clear through the marketplace. This drastically cuts the amount and cost of due diligence required for traditional loans.
3. Reduced marketing costs
Because they already gather thousands (if not millions) of buyers and sellers, marketplaces are an efficient marketing tool, allowing credit providers to target customers of any size, at the exact moment they might need a loan. For traditional sellers, marketplace referral fees or pay-per-click advertising cost between 6% and 20% of a product’s selling price. But on an e-commerce marketplace, credit is not a product, it’s an added service. And as new platforms appear and competition in the sector turns fierce, marketplaces need added services to retain customers. In a few years, the option to finance an invoice at the time of purchase on a marketplace will be a natural expectation for SMEs, so now is the time for credit providers to form mutually beneficial partnerships with marketplaces.
Lending on e-commerce marketplaces is good business. Why else would giants like Amazon, Alibaba and Shopify start offering the service on their platform? Shopify Capital issued US$141.0m in merchant cash advances and loans in the third quarter of 2019, an increase of 85% versus the US$76.4mn issued in the third quarter of 2018. In fact, Shopify’s loan business has grown to approximately US$768.9mn in cumulative cash advanced since its launch in April 2016. Meanwhile, Amazon reached the landmark of US$1bn in annual loans in 2016, and now appears to be restructuring its lending activities, with many commentators expecting bolstered growth in 2020.
5. You can’t afford not to
Put simply, marketplaces are the business model of the future. In the same way as magazines were forced to leave print editions behind and banks had to close branches to offer more online options to customers, anyone involved in trade is now having to spend time and energy on building a marketplace presence — and that includes credit providers. The transition is fast accelerating, so get in now to make sure you don’t lose out.
Alpine Style will be holding meetups about SME finance on B2B marketplaces in Paris in March 2020, and in Los Angeles in September 2020, to explore this topic through a guided roundtable and speed networking sessions. Click here to find out more or apply to participate.