Lessons from a B2B BNPL failure in the UK

• Key insights: Hokodo, a U.K.-based, business-to-business buy now/pay later fintech, has shut down after eight years. 
• What’s at stake: Its closure offers important lessons about the future of business-focused BNPL. Hokodo was one of the many fintechs that bet that businesses wanted consumer-style financing, and offered buy now/pay later-style digital trade financing to businesses. 
• Forward look: The founders are looking to set up a consulting firm focused on AI-driven financial operations for companies that sell B2B. 

Business-to-business buy now/pay later lending wasn’t a hit for U.K. fintech Hokodo, which recently shut down after eight years. Its closure offers important lessons about the future of business-focused BNPL. 

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Hokodo offered buy now/pay later-style digital trade financing to businesses, and was one of the many fintechs that bet that businesses wanted consumer-style financing. 

The theory is that, as consumer financing products like BNPL become more popular with consumers, those consumers will want similar services for their businesses. 

BNPL has been steadily increasing in popularity with consumers, evidenced by increases in loan volume at some of the largest BNPL lenders like Affirm and Klarna. 

“I expect [consumer BNPL] vendors to continue to try to offer buy now/pay later, at pretty much every payment scenario,” Ben Danner, a senior research analyst at Javelin Strategy and Research, told American Banker. “They basically want to be just like the credit card in a way.”

For a while, bringing consumer-style BNPL to businesses was working. The company had buy-in from some of the world’s biggest banks, including BNP Paribas and Citi, and raised more than 50 million euros in equity financing during its lifetime. 

But the company ran into trouble: It took too narrow of a focus, had too much product complexity and scaled too quickly. The company also mismanaged its capital amid a shifting fundraising environment following the company’s Series B in mid 2022.

“We raised our Series B in June 2022, just as the rate cycle turned and venture capital appetite for fintech dried up sharply,” Hokodo said in a blog post. “Timing matters, and with hindsight, we should have cut costs dramatically and hoarded our Series B raise.”

Late last year it decided to wind down operations.

“Closing Hokodo, a company we spent eight years building, was definitely one of the toughest things I’ve ever had to do,” Hokodo co-founder Richard Thornton said in a separate LinkedIn post. “After financing over €500m of purchases for more than 100k business buyers, we processed our final transaction in November.”

One of the biggest lessons for the company was that enterprise merchants – the segment of customers that the company invested heavily in – did not want to outsource their accounts receivable operations to a fintech because they have a better cost of capital and better proprietary data to make credit decisions when they keep accounts receivable in-house, the company said. Not to mention, most enterprise accounts receivable are “deeply embedded” in businesses’ commercial strategy, customer relationships and enterprise resource systems. 

“Extracting it to a third party creates integration complexity that is rarely worth the benefit,” Hokodo said.

Mid-market digital merchants that had a high frequency of repeat transactions, such as merchants in food services, auto parts and travel, got the most value from Hokodo, the company said. 

“We should have known that earlier and gone deeper faster,” Hokodo said.