Can Buy Now, Pay Later (BNPL) Thrive in Africa?

Across the world, the buy now, pay later (BNPL) market is rapidly rising.

According to Allied Market Research, the global BNPL market stood at $90.69 billion in 2020. The market is expected to hit $3.98 trillion by 2030.

In fact, tech giant Apple recently announced its plans to launch the Apple Pay Later in September this year. Experts believe that the multinational has a competitive edge to thrive in the industry.

Mid-May, the global payments platform, PayPal also introduced a new BNPL product, Pay Monthly to enable consumers in the United States to make large purchases between $199 and $10,000.

BNPL in Africa

In Africa, BNPL is also gaining traction.

PayNXT360, a strategy research and consulting firm offering business intelligence on prepaid cards, mobile wallets, and emerging innovative payment trends, posits in its fourth-quarter 2021 BNPL Survey that the BNPL payment industry in Africa and the Middle East will reach $7,187.8 million this year.

The research firm puts the growth rate at 99.8%.

The survey report published in February noted that the region had recorded strong growth over the last four quarters.

According to PayNXT360, this growth was supported by the climb in e-commerce penetration and the disruption precipitated by the COVID-19 pandemic.

These statistics show that Africa’s buy now, pay later market is on the rise.

Already, across Africa, BNPL providers are springing up.

From PayQart and Carbon Zero in Nigeria to Julla, LayUp, Payflex and PayJustNow in South Africa, these providers are making efforts to sustain the rising interest in consumer credit financing.

In July 2021, Jumia partnered with valU, a BNPL platform targeted at the Middle East and North Africa, to offer BNPL services to consumers in Egypt.

The partnership sought to link valU’s platform to JumiaPay, Jumia’s electronic payment gateway.

Despite these recent developments, paying in installments is not new to Africa.

Traditionally, Africans depend on a lay-by payment method to pay for goods and services they cannot afford. However, this works in the inverse: pay now, buy later.

Here, a consumer commits to a down payment on a product/service, then clears the remaining debt over several months before finally taking ownership of the product.

The BNPL Barriers

There are many concerns regarding the survival of the BNPL market in Africa.

BNPL providers depend on effective identity verification networks and a thriving consumer credit culture. However, on the contrary, accumulating individual debt is poorly looked upon by Africans.

Also, according to a report by VerifyMe Nigeria, a digital identity and verification service provider, about 500 million Africans do not have any form of recognizable legal identity.

In Nigeria alone, over 100 million people lack access to any form of recognized identification, the report from the provider said.

Additionally, Nigeria, Africa’s most populous nation, is currently facing a digital lending problem.

Currently, Nigerian authorities are cracking down on ‘digital loan sharks' manipulating cash-strapped Nigerians to offer loans with very high interest rates that are not made initially obvious to loan takers.

According to Oradian, a financial inclusion company, 2.7 million Kenyans were blacklisted by the country’s TransUnion credit reference bureau between 2014 and 2017, for failing to repay digital loans.

This figure represents about 10% of the country’s population, Oradian said, adding that 400,000 of the loans were less than $2.

With these developments, there are concerns as to how BNLP providers can fight the loan recovery problem to sustain the buy now, pay later market in the continent.

BNPL Startups in Africa: In for the Long Game?

Fido, a financial firm that empowers individuals and entrepreneurs to capture financial opportunities in Africa, explained that the African BNPL market still has a long way to go.

“The African consumer credit market still needs to mature before BNPL products can become mainstream [in Africa]. The coverage of credit scores is still low, and cash payments still dominate the space,” Alon Eitan, the CEO of Fido, told Finance Magnates.

Eitan noted that solving the credit risk conundrum is the hardest challenge companies or startups seeking to break into or entrench a BNPL market in Africa will have to overcome.

He explained, “Even players like Klarna who operate in markets where it is much easier to assess credit risk are struggling to deliver returns on BNPL products.

“This challenge is enhanced in Africa where credit underwriting is much harder due to lack of data and low credit bureau coverage.”

Trevor Goott, the Director, Africa & India at Unlimint, a global payments service firm, pointed out South Africa’s BNPL market is “quite mature.”

Goott noted that the market in the country has been “around for a while” and hosts several big players.

“This is because consumer credit is an advanced and mature product in South Africa and customer credit scoring is a readily available and reliable product,” Goott told Finance Magnates.

However, the director believes that BNPL will thrive in the rest of Africa as soon as the credit scoring and customer credit profile problem is solved.

Goott explained, “The idea of spreading a payment over a few months, interest-free, is helpful as a financial tool in Africa due to the lower average disposable income levels.

“It also allows the customer to ‘trade-up’ and purchase the next higher level of product or service, due to the improved affordability.”

However, the lack of credit scoring data stands tall among several barriers hindering this new market, he said.

Goott further explained, “The other challenge is the ability for this real-time credit data of the customer to be made available in real-time at the point of sale (in a store) or a checkout page (when online).

“The decision to extend BNPL credit must be available instantly and be accurate.”

BNPL: The Growth Determinants

Eitan explained that innovative credit models that are able to accurately predict credit risk without requiring financial track record data can help spur the growth of BNPL in Africa.

“BNPL players must be able to lower credit risks to a point where it is commercially viable from a merchant discount rate perspective and from a risk perspective,” the CEO of Fido explained.

In his contribution, Goott restated Eitan’s point, noting that the ability for third party companies or startups to access the credit risk profiles of new customers is a growth determinant for Africa.

“In Africa, customer financial data is generally limited to the banks that are used by those customers, and it is not shared outside the bank,” Goott pointed out.

To move the credit and BNPL sector forward, he explained, there needs to be a sharing of credit data from all banks.

These data, the Regional Head at Unlimit noted, should be made available in a single place.

“For a fee, third parties should be able to access this data, and use it to determine the credit risk of potential customers,” Goott added.