Rise of Buy Now, Pay Later industry in Africa
There has been a heavy rise in adopting Buy Now, Pay Later (BNPL) products and services in Africa. Several startups are taking up the challenge and offering innovative deferred payments services for consumers on the continent. But, just as supply is a factor of demand, BNPL services are heavily being lapped up by merchants who see this as a perfect way to get more consumers shopping from them.
What is the BNPL system?
BNPL is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. Also referred to as “point of sale installment loans,” BNPL arrangements are becoming an increasingly popular payment option, especially when shopping online. BNPL services enable merchants to increase conversion rates, improve customer satisfaction and grow basket sizes.
BNPL is a two-edged sword. It’s essentially one of the most tangible ways to address the credit gap in this part of the world. It sounds good to the ears, as it helps get the merchants to sell more or get more customers to make orders; on the flip side, customers can now buy more at any time, as they do not have to pay immediately. While it may seem like a death trap, what would kill this beautiful service, especially on the merchants’ side, is the waiver of basic checks for typical lending.
BNPL products typically rely on third-party data from credit bureaus to assess the likelihood of a customer’s ability to pay back. This data can become archaic quickly, as reports are not updated daily.
It gets more interesting, as it is worthy of noting that Africa’s addressable market is quite huge. This is because BNPL doesn’t only pertain to e-commerce; it can be done even while playing at an on-site store. A myriad of startups can benefit from having access to such data. From lending agencies such as Branch, Carbon, FairMoney to car sales platforms like Autochek and Cars45 to lifestyle service providers such as Eden, the list is endless. In September 2021, Australian company Zip acquired South Africa-based BNPL player Payflex, a deal that indicates Africa may be ripe for buy-now-pay-later services.
What can be done, and how we can take advantage of this trend
To fully harness the potential of BNPL industry in Africa, stakeholders must focus on creating robust frameworks that ensure sustainability for both consumers and merchants. Regulatory authorities need to step in to establish guidelines that promote transparency, fairness, and consumer protection. For example, mandating clear communication of payment terms and interest structures will prevent predatory practices and maintain trust in the system. Additionally, collaboration between financial institutions, fintech startups, and credit bureaus can foster the creation of up-to-date credit scoring models tailored to Africa’s unique market dynamics.
Startups and fintech companies have a significant role to play in adapting BNPL models to suit local realities. By leveraging alternative data sources—such as mobile money usage, utility payments, and social behavior patterns—fintechs can build more accurate credit assessments and expand access to unbanked and underbanked populations. This data-driven approach not only broadens the user base but also reduces the risk of defaults, making BNPL services more viable. Companies must also focus on partnerships with traditional retailers and e-commerce platforms to scale their services across diverse sectors.
Merchants, on the other hand, can take advantage of BNPL by integrating it into their sales strategies. By offering flexible payment options, they can attract a larger pool of customers and increase their average transaction value. However, merchants must also invest in customer education to ensure users understand the implications of deferred payments. Properly managed, this approach will foster loyalty and repeat business, creating a win-win for both merchants and consumers.
Finally, to ensure long-term success, innovation must remain at the core of BNPL services in Africa. Fintechs should explore incorporating AI-driven tools to refine credit checks, fraud detection, and payment reminders, thereby enhancing operational efficiency. Furthermore, collaborations with mobile network operators can facilitate broader adoption by integrating BNPL into mobile money ecosystems. By taking these steps, Africa can position itself as a leader in the BNPL revolution, addressing the continent’s credit gaps while driving economic growth and financial inclusion.
