To the rest of the world, buy now, pay later (BNPL) has become a way of life. At the checkout page of any popular European or American store, you’re sure to find Affirm, Afterpay, Klarna, Zip (formerly Quadpay), PayPal, or another BNPL variant as a payment method. BNPL providers are offering consumers a means to purchase products online and pay in installments.
For consumers, having more payment choices — especially installment plans — is a win. Ownership of pressing items has not only become more realistic: but now paying for them is the most convenient it has ever been. In practice, anyone shopping online can get credit upfront, as long as they qualify. The credit is usually available in the form of deferred payment in full or by splitting costs across multiple fixed installments, with or without interest charges.
While buy now pay later has found its feet quickly in other regions, Africa is well-placed to follow suit. And there are valid reasons for this belief. But first, what is the current outlook for BNPL on a global scale?
👬 Building with merchants and the rise of ‘Pay in 4’
A robust merchant network is part of the appeal of BNPL companies. It means that consumers have access to a wide selection of products and services. The business model usually involves the BNPL provider charging the merchant a commission fee which is considerably higher than the transaction fee charged by debit/credit card providers. In return, the BNPL company takes on associated risks, including defaults and liabilities arising from events like fraud.
For both parties, this is a fair exchange worthy enough of a successful partnership.
Speaking of business models, many providers have adopted the ‘Pay in 4’ concept. Instead of paying the total price for goods or services at the point of purchase, the consumer pays in four (or as determined by the provider) interest-free installments.
Now presented with a more flexible payment option, the average consumer can improve (or maintain) their monthly cash flow in what would have otherwise been a drawdown on personal funds.
⏳ Will BNPL replace credit cards?
Buy Now, Pay Later is not a new service anywhere in the world. Layaway options have existed for decades across major global outlets, where customers can select an item they like, lay it away from the rack, and keep making payments until it’s enough to take possession.
Paying later for goods and services also exists in the form of credit cards and interest loans. And that has been the go-to consumer financing option for many individuals in the past. But with a new wave of Gen Z and Millennial consumers who are predominantly averse to debt and interest charges, we may be witnessing a shift. In the U.S., 75% of buy now pay later users belong to this age demographic.
Globally, buy now pay later transactions are expected to hit $680 billion by 2025. For more context and the reality of this, half of BNPL consumers in Australia have stopped using their credit cards altogether, opting instead for interest-free installments.
As far as consumers are concerned, BNPL businesses propose a seamless process for all sales channels - online and offline shopping is fully covered.
⏰ Are African consumers ready?
In Africa, BNPL services have always existed informally. One can buy items on credit and get instant value while paying the vendor another time. There are limitations to this though: one must have built a relationship with the vendor. Even then, this usually applies to small-value items. For instance, it would be difficult to get a high-end smart TV on credit from a familiar vendor who needs steady cash inflow to remain operational.
Also, with a really low credit card penetration across the continent, an opportunity exists to serve the young and vibrant population. In Nigeria alone, only about 3% of the population own credit cards, one of the lowest in the world.
So, what is the defining factor when it comes to buy now, pay later?
🤳🏽 Interest-free is a big deal
For many shoppers in countries like Nigeria, it is the interest-free proposition that certain BNPL providers offer and the ability to take possession of items immediately. In practice, it is just another payment method. Only more convenient and less burdensome on their daily expenses.
The good news is that fintech-powered BNPL in Africa is on the rise. Most notably, PayJustNow (South Africa), PayQart (Nigeria), Carbon Zero (Nigeria), Shahry (Egypt), Payflex (South Africa, recently acquired by Australian powerhouse Zip).
A lot of these companies have also discovered that merchant acquisition is a key driver. That is, get as many merchants as you can on your platform and you can entice more customers. It is in line with the model operated by global giants like Klarna, Affirm, Afterpay, etc. There, however, exists a business model not too popular, which may prove to be a key differentiating factor to those who offer it. 👇🏾
🎉 Giving consumers unlimited access to merchants
Carbon Bank's BNPL solution, Carbon Zero, operates this framework. The company enables customers to buy products instantly while paying in small equal installments at a 0% interest rate. Recognizing the opportunity to serve customers using a direct-to-customer (D2C) approach, Cabron intends to integrate its BNPL solution into the banking application.
With their Carbon debit cards, shoppers would be able to make purchases across any store of their choice, online or in-store. They will only make a 25% upfront payment and split the rest over six weeks (terms for its initial proposition).
This makes Carbon the first BNPL provider in Africa to offer a merchant-agnostic solution, with customers shopping anywhere its Visa-powered debit is accepted. In a field where many players replicate the same service across the board, the Carbon team aims to take a different approach.
In an interview with TechCrunch, Carbon CEO, Chijioke Dozie, recognized the opportunity for BNPL across the continent but asserted Carbon Zero will continually adapt to the local environment, operating across multiple verticals and ensuring the product is the right fit for local consumers.
UK fintech, Zilch, is another company that offers a similar service, providing its users with an over-the-top BNPL product that allows its customers to shop wherever MasterCard is accepted. It has proved to be a very effective strategy, as the company just surpassed one million customers, achieving up to five times the year-on-year growth rate of industry peers, including those in the U.S.
🤞🏾 Buy now, pay later is here to stay
There is a huge potential for BNPL in Africa, on the backdrop of the many different factors. One of them is the increasing demand for more convenient payment plans from the major demographic in Millenials and older Gen Zs, who also have the higher purchasing power in most economies. Another contributor is the growth in e-commerce, which is expected to increase by over 11% annually between 2021 and 2021 in Nigeria.
As Carbon launches Carbon Zero in its banking app, this experiment for BNPL for the African market is about to take a more holistic direction. But one thing is clear; the real winner will be the African consumer as there has never been a better way to own things.