Trade Finance Platforms Provide Lifelines to Asian B2B Marketplaces Hit Hard by Pandemic

The great digital shift is bringing B2B more fully into the 21st century — and digital marketplaces are a key component of it.

But even as marketplaces proliferate, an inability to offer trade credit to buyers keeps them from realizing their full potential to transform supply chains.

Speaking with Karen Webster, Nir Tal, CEO of Israel-based FinTech Transigo, echoed PYMNTS’ findings that show a significant “trade gap” as a result — in the U.S. alone, $3.1 trillion is the net amount U.S. firms are owed in accounts receivable on any given day.

Read Also: Trade Credit’s $3.1T Squeeze On US Businesses

It is trade credit, after all, along with insurance, that can make sure that sellers complete the sale and that buyers commit. And without it, cash comes in the door later and later, which burdens working capital. The burden is felt, most keenly, by smaller companies that are the lifeblood of the online marketplaces themselves.

Tal said that B2B marketplaces that provide terms to buyers could boost customer loyalty and even order volumes — particularly in Asia, which has been a key market for importers around the globe.

Marketplaces are Evolving

Finance is an important factor to consider as the marketplaces become more than just “digital yellow pages” — directories in a sense that simply served to introduce buyers and sellers in return for a subscription fee. The marketplaces are also losing out on revenues that otherwise would have been gleaned from trade shows, which have effectively been hobbled, perhaps long term, by COVID.

“I don’t think we’ll ever go back to the huge ‘deal closing shows’ that we’ve seen in the past,” Tal told Webster.

As a result, the marketplaces have pivoted toward business models based on transaction volumes, following in the footsteps of Amazon and eBay, helping buyers and suppliers move everything across supply chains, from home goods and accessories to consumer electronics to beauty supplies.

But with each COVID wave that’s hit the world, supply chains have been hammered, introducing more uncertainty into the mix.

“People have talked to us about goods being delayed for a very long time,” he said. “And that particularly has an impact on the businesses of SMB importers and resellers, and especially retailers.”

Longer lead times, of course, mean that smaller firms have been forced to pivot to air freight and other means of getting goods into inventory and on shelves more quickly, often at the expense of margins.

The Solution

To help companies clear these new hurdles, Transigo offers a B2B Pay Later solution — via an application programming interface (API) integration that lets platforms extend 120-day net terms for international transactions, up to a $500,000 limit.

Buyers tapping into the Pay Later platform authorize Transigo to perform security and compliance checks and access their bank account information via Plaid. With the help of artificial intelligence (AI) algorithms, Transigo then conducts a credit assessment and decides whether to extend credit (typically occurring within minutes). If the buyer opts to click “pay later” at checkout, they get payment terms while the platform finances the transaction to the seller.

In addition to relying on its proprietary AI decisioning technology, Transigo also caps its downside risk by using credit insurance coverage and pulling payments directly from borrowers’ bank accounts. The marketplaces and the exporters behind them, he said, pay nothing and have no risk associated with the Transigo service.

Building on Fresh Investment

Earlier this month, Transigo said that it had obtained $70 million in funding to expand cross-border B2B marketplaces services. The company has earmarked the funding toward expanding its software-as-a-service (Saas) platform to major Asian markets this quarter.

Read more: Transigo Snags $70M in Funding From Israeli Companies

Asian marketplaces typically provide a limited range of payment options — tied to payments in advance, for example, or perhaps credit cards. They may utilize telegraphic transfer, which exists as an electronic method of transferring funds via overseas wire transactions, but with SWIFT fees.

After all, he said, “a buyer could max out their credit card with a single order — and of course, financially, that can be really painful.”

The urgency is there, as recent PYMNTS reports indicate that cross-border eCommerce sales will continue to soar. The value of global cross-border retail payments is predicted to increase from $1.95 trillion in 2016 to $3.56 trillion in 2022. Transigo has noted that cross-border eCommerce in China alone will hit $1 trillion in the current year.

See also: Localized Payments Are the Gift That Keeps on Giving for Global Merchants

Looking Ahead

After it goes live on several marketplaces in Asia, Tal said Transigo is eyeing extending its payment services to other countries — most notably Australia and Britain, bastions of open banking. The company is looking to raise another $250 million to fuel that expansion.

For the marketplaces, there’s a strategic and competitive advantage in offering trade financing via Transigo, he said. Of the platforms, he said, “they’re at each other’s throats seeking to gain access to these buyers.”

Providing net terms, he said, boosts recurring revenues for the marketplaces. If a buyer has credit on a platform and knows they can buy with net terms, they’ll keep transacting on that platform, cementing customer loyalty.

Extending trade finance can also help marketplaces smooth out seasonal fluctuations. As he told Webster, platforms like Alibaba see volume surges several weeks or months before peak holiday selling seasons in end markets. And then, of course, there are “dead zones” where ordering activity lulls.

Providing credit, he said, helps buyers have the firepower in place to buy more and more often throughout the year.

“Credit terms lead to buyers buying more goods — and that’s a great thing for the marketplaces,” he told Webster.