BY MADUABUCHI EFEGADI
With Africa’s fintech sector picking up, many companies in Africa are set to be looking to a diverse and complex set of products, including embracing the trending lucrative ‘Buy Now, Pay Later’ or BNPL model, to create multiple revenue streams and maintain growth, as the continent’s fintech sector is maturing, analysts say.
However, traditional payments and lending products still dominate the sector in the continent. Founders of BNPL are looking at untapped verticals on the continent to either expand on existing products or build new companies in nascent sectors.
BNPL exploded in popularity globally during the Covid-19 pandemic as more people shifted to online shopping.
The model is a type of instalment loan. It divides a buyer’s purchase into multiple equal payments, with the first due at checkout. The remaining payments are billed to the buyer’s debit or credit card until the purchase is paid in full. It lets the buyer make a purchase and receive it immediately but pay for it at a later time, usually over a series of instalments.
The move to BNPL demonstrates how more fintech companies may yet look at the space as a novel source of income, with less competition.
In 2021, the BNPL market reached a global value of $125 billion, according to Precedence Research. But Africa, a continent of 1.3 billion people with a combined gross Domestic product (GDP) of $3 trillion, is yet to make serious headway in the sector.
Some estimates calculate that the BNPL market will be worth $3.9 trillion by 2030, going by current growth, leaving plenty of room for African companies if they can expressively attack the space.
According to Babatunde Akin-Moses, the chief executive officer and cofounder of Sycamore, a Nigerian peer-to-peer lending platform, “the opportunity (of BNPL) is very large.” He said people are travelling and experiencing what is happening in foreign markets when they want to buy items like phones, cars or TV sets.
“In Nigeria or Africa, it is mostly a cash economy. But people are seeing that there is a different way things can be done,” Akin-Moses said.
Economic analysts and fintech researchers list several reasons why the BNPL space is not yet well developed in Africa, saying the space is “essentially a credit product to individuals, and the credit space is not particularly well-developed on the continent.”
They explained that BNPL companies charge vendors a transaction fee to offer customers the ability to pay for a product over several months in interest-free payments. The firms cover the upfront cost of the goods and eventually recuperate the total amount from the customers.
Another reason is that extending credit lines to individuals to buy items that do not generate income (to the company), and which are not considered assets, is seen as even riskier than lending to SMEs and businesses.
Though Africa has made important strides in de-risking lending, there is still a long way to go with the use of data and technology to extend credit, especially in legacy banks, the BNPL analysts say.
For Akin-Moses, there is still a fair amount of cultural hesitancy to take on debt in some parts of the continent. “Growing up as a Nigerian, debt is so stigmatised; and it is seen as a bad thing. The idea is why would I pay three times when I can just pay once?” He posits.
Also, a critical niche gap is that the top five BNPL companies, Klarna, Afterpay, Affirm, Zip, and Sezzle – which mostly offer services digitally and on e-commerce platforms – do not yet look to an Africa entry, despite significant demographics. Africa is yet to provide a market where digital purchases are made online compared to other parts of the world. This therefore, makes it harder for companies to find a ready marketplace to offer their services on the continent.
According to data by Statista, these top five global BNPL companies all provide solutions only on digital transactions.
However, Nigeria’s CredPal, launched in 2018, and Kenya’s LipaLater could cause continental explosion in the BNPL sector over the next few years, having been founded with the specific mandate to bring interest-free finance to thousands of consumers. Also, an ever increasing number of companies are entering the space too.
CredPal was launched in 2018, and raised $15 million in March (this year) in a debt and equity bridge round to expand its services across Africa. LipaLater also raised $12 million in January to launch a similar expansion.
In the rest of the world, giants like Apple, Square, PayPal and Visa are trying to get a slice of the action. However, some of Africa’s more established fintechs are also looking at products in the space to add to a matching set of core products. Example, Nigerian neobank, Carbon, introduced Carbon Zero last year to provide its customers with an innovative BNPL product.
Akin-Moses’ Sycamore says BNPL may end up representing anywhere up to 60 percent of his company’s portfolio, which is currently made up almost exclusively of peer-to-peer lending. The company facilitates around $2.5 million in loans between 10,000 small-sized borrowers and 300 lenders. He says the company was looking to carve out a new niche in a sector where BNPL products were yet uncommon.