Let’s talk about Buy now pay later
Going shopping is fun if you have the finance that is. But imagine, going shopping without the money and then someone pops up, get the product now and get to pay later!
Welcome to Buy-Now-Pay-Later, the latest fintech service that is taking various markets globally by storm. In recent days, we have seen Jack Dorsey’s Square Inc acquisition of Australia’s Afterpay and Paypal jumping in to buy Japan’s Tokyo based Paidly.
But what’s the take on the fundamentals, could BNPL be the next big space and is there more room left for innovation?
How does buy now, pay later work?
Let’s start from the beginning, in 2005 Klarna Bank AB, a Swedish financial service company began revolutionized consumer lending in what was previously known as hire purchase.
With Klarna developing the tech system and implementing this in major markets, it was the new way to go. As time moved in, lots of companies sprung up across the globe, some of them here in Africa!
The BNPL system is formatted in a manner in which the company is paid by the store on the number of successful payments the company does to clients. This gives the clients an opportunity to get their items at zero interest-free, with a chunk of the cost and insurance pushed to the store and the BNPL partner.
In a report published in August this year by Allied Market Research, the global buy now pay later market generated $90.69 billion in 2020, and is projected to reach $3.98 trillion by 2030. So, what’s the local market doing to tap into this space?
Aspira, Lipa Later.
In the local space, you have probably heard of Aspira Finance & LipaLater as the major 3rd payment option that consumers have in Kenya for buy now, pay later.
Lipa Later currently holds the top spot and has 30 retailers according to its website and is present in Kenya, Rwanda, Nigeria and Uganda. Its retail partners offer a range of products from electronics, phones, furniture and even cars. This has become one of the leads for consumers who swarmed e-commerce as people moved to work from home.
Aspira has similarly moved in, partnering with some of the largest retail companies in Kenya to offer the BNPL service. In 2020 at the onset of the pandemic, the company partnered with Naivas to allow customers to acquire household goods and pay for them in instalments over a period of one year in either daily or monthly instalments.
Aspira has over 22 partners from its website and is offering a range of products similar to consumers.
Adoption of BNPL in Africa
The buy now pay later models are slowly being adopted in Africa, however, a challenge still lies with the integration of various payment systems to the continent’s 1 billion-plus population.
While most buy now pay later companies have thrived in credit-savvy populations and consumers who are used to consumer lending, Africa lags behind in this. In most of these economies, the consumers are more into banking, credit cards and thus it becomes easier to understand their defined habits.
Africa on the other hand is more of a “cash is king” environment, the credit data about the population is also a challenge, something most countries like Kenya are working on with a centralized data management system.
Most local companies depend on the credit reference bureau as of now.
At the beginning of September, we saw Australian buy now, pay later (BNPL) company Zip acquire South Africa-based BNPL player Payflex for an undisclosed amount and this is just the beginning.
Why does Buy Now Pay Later matter?
With the age of Ultron dawning in the finance world, the market is opening up to lots of transformative ideas. The BNPL space is already disrupting the credit card space which has for long dominated the consumer lending space.
The future of BNPL is now set to involve Business to Business (B2B) where companies will be allowed to access BNPL products for their merchandise and let them pay later when consumers actually manage to buy these products.
That’s not the end, we will likely see more companies and more products get into the BNPL process and even have a wider scale integration to both businesses and clients, this sums up to a move to take advantage of consumer spending habits and develop it as a mode of income for BNPL companies.
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