Why BNPL is suddenly the hot piece of Africa’s fintech space
Fads and trends come and go in African – and global – technology, but the steady rise of ‘buy now, pay later’ (BNPL) on the continent looks set to continue for some time to come.
When Disrupt Africa published the first edition of its Finnover for Africa reports back in 2017, BNPL – a type of short-term financing that allows consumers to make purchases and pay for them at a future date – barely registered, but when the fourth edition comes out next year, a significant percentage of fintech companies on the continent will operate such services.
These startups are also unusually well funded, even for African fintech ventures, with the likes of Nigeria’s CredPal, Kenya’s LipaLater and Egypt’s Symp among those who have banked in capital only in the last few months.
But why the sudden explosion in interest in BNPL, both on the entrepreneur and investor side?
Democratization of credit
Eric Muli is the CEO of Kenya-based BNPL company LipaLater, which started operations in Kenya in 2018 and has since ventured into Rwanda, Uganda and Nigeria. The startup has served 250,000 customers to date, and has 6,000 sellers on board. Muli said access to credit in Africa had for too long been the privilege of a “lucky” few.
– Statistics show that only five percent of Africans have access to formal credit services. At the same time, over one billion Africans have extremely low purchasing power, which limits their ability to pay for goods and services in advance. It is simply an idea whose time has come. BNPL companies are helping to bridge this gap by providing affordable credit to consumers in Africa, where most would not qualify for credit from banks,” he said.
Over in Nigeria, Fehintolu Olaogun is the CEO of CredPal, which has launched an omnichannel merchant suite, Credal Pay, that helps merchants of all sizes offer a buy now, pay later payment option to their customers. He said more entrepreneurs are being drawn into the space given its significant impact on African consumers in such a short period of time.
“Africa has the highest proportion of entrepreneurs and many of these businesses are informal, meaning that they and their workforce earn daily, weekly and monthly income. Earning from this capacity does not give them the purchasing power they need to buy directly to medium-high ticket items.With the facility offered by BNPL, many of these people can now enjoy a better standard of living and financial ease because they can purchase essential items while spreading the payment, he said.
“With technology, there are more opportunities to build innovative digital products that can properly deliver BNPL services to consumers in our climate. There have also been more investments in African startups that have made it easier to build, innovate and serve African consumers at the same time as they have contributed to the growth of the economy.”
For Mohamed El-Feky, co-founder and CEO of Egypt’s Sympl, macroeconomic conditions have also aided the growth of the space.
“Financial solutions are most needed in times of recession, so we see the sudden pull as a consequence of high inflation rates and their impact on rising prices of consumer goods,” he said.
Win-win scenarios
Consumers can therefore benefit from the proliferation of BNPL services, with many Africans able to access short-term credit for the first time. Startups offering these services, meanwhile, smell a real opportunity.
“For companies operating BNPL services, the benefits to profits start from interest and merchant fee billing, while ultimately empowering consumers as they cope with inflation and low purchasing power,” Olaogun said.
“It is a known fact that inflation affects spending, which discourages consumers from taking cash loans, but BNPL is a more promising proposition because what we are offering is a chance to buy necessities and get immediate and long-term value while paying back easily. “
Muli said African BNPL companies were innovating new ways to influence how businesses do things while addressing consumer pain points.
“We see BNPL companies providing credit services in implied sectors such as access to medical services, education, travel, energy solutions and various lifestyle products, while improving the standard of living of millions of Africans,” he said.
“Additionally, retail partners increase their customer reach, sales volume and revenue by a significant 30 percent or more, impacting the livelihoods of millions of Africans through job creation and the economic ripple effect. BNPL services are largely untapped in most countries, so the economic opportunity here is huge for companies venturing into this space.”
El-Feky agrees that merchants can profit in a very real way.
“The benefits to the business are clearly in growing a customer base at a lower cost and lower burn rate, while the opportunity lies in expanding their network of partners and resellers and showing the real impact of having a BNPL solution available for end users to use merchants and meet their daily financial needs,” he said.
A complex web
However, it is not as simple as “build it and they will come” in the world of BNPL. Olaogun says that there are major challenges around distribution, which means that sellers sell on your behalf.
“There are complexities in the BNPL process that do not happen with cash – for example, the customer may not be eligible to consider credit, for purchases, so sellers understand that it is impossible to offer all customers credit due to certain conditions that must be fulfilled. So you think about how you can bring in merchants and teach them about credit at scale while ensuring that they adopt and sell the service to customers,” he said.
Another challenge is the lack of adequate documentation and unstructured consumer credit records, which in other parts of the world will guide how BNPL platforms make risk-based lending decisions.
“Finally, there are credits. Both credit culture and BNPL in Africa are still very much at the development stage. Yes, many consumers are familiar with loans and yet understanding how to use credit responsibly and pay back on time is still a major challenge facing lenders in Africa,” said Olaogun.
Muli said Africa has been a cash economy for a long time, and agrees that consumers have limited education and understanding of credit services.
“BNPL companies must make people aware of the possibility of using credit services to achieve the lifestyle of their dreams and demystify misconceptions around credit. In parallel, BNPL companies help build the credit history of consumers in Africa and the infrastructure for credit scoring,” he said.
Insatiable investor appetite
Despite these challenges, African BNPL startups are hot property among investors right now. Olaogun says part of the appeal is the sheer necessity of these solutions.
“Consumer credit products such as credit cards, mortgages and car finance are still not popular with African consumers, making BNPL a necessity not only to increase consumer purchasing power but also to drive Africa’s economy,” he said.
“Also, the projected growth of e-commerce in Africa is evidence of the ease of deploying BNPL as a digital payment option. Africa is an untapped market and investors are taking a cue from how consumer credit has performed in developed economies.”
El-Feky agrees that investors are tempted to invest in African BNPL platforms based on what they have seen elsewhere in the world.
“There have been global players in the market for quite some time now, giving investors clear benchmarks and key performance indicators to look for in any new company offering similar solutions,” he said.
For Muli, it’s about investors being keen to invest in innovative solutions that improve people’s lives or it’s easy to do business, especially in emerging markets like Africa.
“As a credit provider and payment alternative, BNPL services such as Lipa Later are an innovation in financial services that influences and enables the purchase and payment landscape. It is no wonder that we have seen investments going into BNPL companies in Africa,” he said.
