Fundbox last week launched an online payment service for small businesses that uses artificial intelligence and machine learning to provide instant financing during online checkout of up to six figures per transaction.

The ease of B2C online shopping is coming to online payments for B2B buyers.

While many business-to-business e-commerce sites rework their dated designs to be more user-friendly like retail sites, there’s also a growing trend to extend such transformation to the online checkout and payment process—for example: helping buyers get what they need on such extended terms as “net 60,” while also letting suppliers get paid instantly.

AI-based technology is bringing the ease of using credit in the online retail world to the more complicated world of B2B transactions.

More payment options are emerging as financial technology firms introduce new online credit-as-a-service offerings for business buyers seeking to complete a purchase transaction on an e-commerce site. New services from fintech firms “seem to be coming out of the woodwork,” says Krista Tedder, head of payments research at financial technology research and advisory firm Javelin Strategy & Research. Among the firms are Credit Key, MSTS, Billtrust, BlueTarp Financial, Fundbox and Apruve. Apruve last week announced it had received $6 million in funding from Cloud Apps Capital Partners, TTV Capital and Allegis Capital to further develop its B2B credit automation platform.

AI and machine learning

Behind much of the market growth is the expanding use of artificial intelligence and machine learning, technology applications designed to scour tons of data about a buyer’s financial and purchasing background and quickly issue a risk score for providing credit. That trend is bringing more of the ease of using credit in the online retail world to the more complicated world of B2B transactions, Tedder says.

“You can walk into a department store and get immediate in-store credit,” she says. Now, she adds, financial technology providers are taking this consumer payment method and putting a form of it into online B2B commerce.

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StefanieBotelho-FitzroyToysInc

Stefanie Botelho, founder of Fitzroy Toys, says she uses Fundbox Pay to help buyers and sellers complete transactions on her wholesale e-commerce site.

A case in point is Fundbox, an online financial services firm backed by Amazon.com Inc. CEO Jeff Bezos that last week launched Fundbox Pay as an in-checkout payment option. Fundbox Pay lets sellers offer, for example, a “net 60” payment option to B2B buyers during the online checkout process. If the buyer is approved for credit—a process that Fundbox says typically takes less than three minutes—the seller gets immediate payment of the full customer invoice, minus a fee equal to about 2.5% to 3% of the purchase transaction, similar to a typical credit card interchange fee, according to Prashant Fuloria, chief operating officer of Fundbox. After running a risk analysis on a buyer, Fundbox lines up financing through its banking partners.

The buyer can take the full 60 days to complete the payment without paying for interest and has the option to extend the payments for a full year for a fixed fee.

Going beyond typical credit scoring

Fundbox, however, goes beyond typical credit scoring and financing methods to tailor its credit service to businesses without affecting the personal finances of a buyer from a small-business, Tedder says. For many small business owners, many of whom may take on personal debt to launch their business, a review of their personal finances often scuttles a deal even when their business itself has strong financial records, Tedder adds.

Fundbox integrates its software with the buyer’s business accounting software, which lets Fundbox review the buyer’s records of purchasing transactions with multiple suppliers as well as other financial records.  This also lets sellers more easily track invoices to ensure they were paid,  Javelin’s Tedder says. Fundbox has pre-integrated its technology with a number of accounting software applications, including Ebility, FreshBooks, Harvest, InvoiceASAP, Jobber, Kashoo, QuickBooks, Xero and Zoho.

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Fundbox uses AI and machine-learning technology to produce a credit decision for the buyer within three minutes and sometimes within a minute, Fuloria says.

The advantages of using AI and machine learning, meanwhile, complement other technology improvements related to storing and using large volumes of data and better online user interfaces that make data-backed applications more accessible to website users, says Rivka Gewirtz Little, research director for global payments at technology research and advisory firm IDC.

In addition, providing information available online that explains more about how algorithms produce credit decisions is raising the confidence level of the buyers and sellers that rely on such credit-risk data, she adds. “There used to be more concern about a black box in how decisions were made,” she says. “Now there’s more trust in it.”

Tedder notes that Fundbox “provides information on what type of information was looked at” in assessing credit risk, such as the debt volumes incurred by buyers without revealing specific personal information.

Fundbox, based in San Francisco, has raised $140 million in venture capital since it was founded in 2013. In addition to Bezos, investors include Khosla Ventures, General Catalyst and Spark Growth Capital.

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A toy wholesaler’s take

Stefanie Botelho, founder of Fitzroy Toys Inc., an online wholesale marketplace connecting toy brands and retailers, says in a press release Fundbox issued last week that Fundbox Pay will enable Fitzroy to “eliminate the lending risk for our brands and empower our retailers to purchase smarter by giving them access to extended terms that are unparalleled in our industry. Our customers are able to buy the inventory they need, when they need it, to grow.”

Tedder notes that Fundbox can expect to see good demand for its services from companies seeking financing of online purchase transactions valued as much as $250,000. She suggests as an example a restaurant and food truck business that is ready to expand and wants to quickly order expensive kitchen equipment online. “That can get pricey, and to quickly secure credit, make a purchase and get it shipped is very important to the speed of commerce.” Fundbox says its highest expected transaction for Fundbox Pay is about $100,000, but doesn’t rule out higher amounts.

Innovative online financial services such as Fundbox Pay, Tedder adds, are likely to force more traditional providers, such as major credit card companies, to respond with new financial services of their own. “Legacy players will have to pay attention to this,” she says.

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