Is “Buy Now, Pay Later” the next big thing for fintech in Africa?
While traditional payments and lending products still dominate the industry, founders are turning to untapped verticals to expand existing products or build new businesses in fledgling areas.
Despite a Buy Now, Pay Later (BNPL) market that reached a global value of $125 billion in 2021, according to Precedence Research, Africa has yet to make serious progress in the sector. Some estimates put the market at $3.9 billion by 2030, leaving plenty of room for African companies if they can meaningfully tackle the space.
“The opportunity is huge,” says Babatunde Akin-Moses, CEO and co-founder of Sycamore, a Nigerian peer-to-peer lending platform. “People travel and find out what’s happening in foreign markets when they want to buy phones, cars or televisions. In Nigeria or in Africa, it is mainly a monetary economy. But people see that there is another way of doing things”.
However, there are several reasons why the BNPL space is not so well developed in Africa. The first is that the BNPL is essentially a retail credit product and the credit space is not particularly developed on the continent.
BNPL companies charge sellers a transaction fee to offer customers the option to pay for a product over several months in interest-free payments. Companies cover the initial cost of goods and eventually collect the full amount from customers.
Extending lines of credit to individuals to purchase items that do not generate income and are not considered assets is considered even riskier than lending to SMEs and businesses. Africa has made significant progress in reducing lending risk, but more needs to be done with the use of data and technology to extend credit, especially in traditional banks.
Another reason, says Akin-Moses, is that there is still a good deal of cultural reluctance to go into debt in some parts of Africa. “Growing up as a Nigerian, debt is so stigmatized and seen as a bad thing. The idea is why should I pay three times when I can only pay once? »
BNPL companies also mainly offer services digitally, on e-commerce platforms. According to data from Statista, the top five BNPL companies in the world are Klarna, Afterpay, Affirm, Zip and Sezzle, all of which provide solutions on digital transactions.
Africa, on the other hand, is a market where far fewer digital purchases are made online compared to other parts of the world. This makes it more difficult for companies to find a willing market to offer their services.
A sector with strong growth potential
Nevertheless, the sector could explode in the next few years in Africa and more and more companies are entering the space. Companies such as Nigeria-based CredPal and Kenya-based LipaLater were founded with a specific mandate to provide interest-free financing to thousands of consumers.
Launched in 2018, CredPal raised $15 million in March in a debt and equity bridge to expand its services across Africa. LipaLater raised $12 million in January to launch a similar expansion, still with debt and equity.
But as in the rest of the world where Apple, Square, PayPal and Visa are trying to get a piece of the action, some of Africa’s most established fintechs are also eyeing products in the space to add to a suite of basic products. Nigerian neobank Carbon launched Carbon Zero over a year ago to offer its clients an innovative BNPL product.
Stone Atwine, CEO of Eversend, a Uganda-based money transfer company, told Tech54 that they are also considering the BNPL space as a way to offer more products to their customers.
Sycamore’s Akin-Moses says BNPL could end up accounting for up to 60% of the company’s portfolio which is currently comprised almost exclusively of peer-to-peer lending. The company facilitates approximately $2.5 million in loans between 10,000 small borrowers and 300 lenders. The move to BNPL shows how more fintech companies can still see the space as a new source of revenue, with less competition.
The CEO says the company is looking to carve out a new niche in an industry where BNPL products are not yet mainstream.
“Most of the business right now is in laptops, electronics and cars,” he says. “And while I don’t want to take the cat out of the bag, I think we saw a big opportunity in some of the spaces that people aren’t funding.”