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Usually interest free over 30 days for the consumer, BNPL providers make money by charging merchants a fee to access their products. As such, they are much more affordable for consumers than credit cards that often come with exorbitant fees in the double digits.
Additionally, merchants are happy to pay, given the rising cost of living across the continent and consumers’ inability to pay in full for larger ticket items, such as computers, smart phones, and other expensive equipment required for personal or business development, says Fehintolu Olaogun, CEO at CredPal, a BNPL company based in Nigeria.
“When I was growing up, my parents had to save over a long period of time to buy me a laptop for school,” says Olaogun.
The BNPL sector – and access to credit more broadly – is still pretty nascent in Africa. Right now, there is room for everyone to win
“Today BNPL means that parents can buy a laptop today and pay for the item over time. This really opens up economic and social opportunities for Africans, which may have been missed in the past,” he says.
To date, CredPal has 4000 onboarded merchants – including Pointek, Justrite, Slot, Prag, uLesson – and over 100,000 users that engage in their channels monthly.
“What is interesting is that these aren’t totally new products,” says Olaogun. “They are akin to asset finance or point of sale financing, so we know that the need has always been there.”
However, providing merchants and consumers digital access to these types of products has allowed them to prosper within the current fintech ecosystem. According to research compiled by PAYNXT360, the BNPL payment industry in Africa and the Middle East is expected to grow by 99.8% on an annual basis to reach $7.2bn by the end of 2022.
Given the social and financial value attributed to BNPL schemes in Africa, several BNPL start-ups have emerged across the continent, and investors have flocked to support them. In March this year, CredPal raised $15m in debt and equity via bridge funding to grow its consumer credit offering in Nigeria and expand its business within the continent. According to Olaogun, geographical expansion into Kenya, Egypt, Ghana, and Cameroon is next on the agenda.
[…] our aim isn’t to just make money on credit, but to impact the lives of Africans
“For the last round of funding, we started laying the ground towards the end of last year, so the whole process took around four to five months,” says Olaogun. “But as a start-up, we are growing exponentially and the need for investment is constant. We are always looking towards the next opportunity and how we can continue to drive growth.”
Competition across the continent is heating up. In Kenya, BNPL start-up Lipa Later raised $12m in pre-Series A funding in January this year, which will fuel plans to enter Tanzania, Ghana and Nigeria. Digital-first Carbon Bank launched Carbon Zero in June this year and allows customers to spend up to N2.5m ($5,907). Kenyan mobile company Safaricom, launched a zero-interest credit facility in June called Faraja, which will allow customers to shop for goods worth up to KSh100,000 ($835).
International companies are also looking to Africa for growth: Moroccan B2B e-commerce and retail start-up Chari plans to test BNPL services following the close of a bridge round in January, which put the value of the company at $100m; in June, Apple announced it would launch its own deferred payments service; and in the same month, Dutch company, PayU, announced plans to expand into Ghana, South Africa, and Nigeria.
However, as Olaogun says: “The BNPL sector – and access to credit more broadly – is still pretty nascent in Africa. Right now, there is room for everyone to win.”
Some of the reasons credit card companies and banks charge high interest rates on debt in Africa is due to lack of credit history and collateral. Although some of these risks remain in the fintech space, new and nimble start-ups that collect and have access to myriad data use various other identifiers to provide credit at much more affordable prices.
ID cards, mobile phone use and biometric authentication may be enough for Africans to access credit from BNPL providers.
Even so, while the cost-of-living crisis means that some consumers prefer to pay in instalments, many – particularly at the global level – are starting to stave off BNPL as consumers cut spending to pay for essential goods and services.
Default rates are higher than what we see in developed countries…
Swedish BNPL heavyweight Klarna announced it would lay off 10% of its 7000 workforce as the global economic downturn continues to set in. Q1 results for the company showed that credit losses were equivalent to 1.9% of customer lending, up from 1.8% a year earlier, with the company reporting a net loss of SKr2.6bn ($265m).
Despite global trends, Olaogun remains hopeful. “Default rates are higher than what we see in developed countries, such as the US and Europe, but I believe they are manageable,” he says.
“We – and other responsible players in the market – lend to those who we believe have the ability to pay back and once these people have been identified, we make sure that we do not give the customer more than we think they can afford.
“If a consumer does default – which we consider unpaid debt after 90 days – there are fees to be paid, but in our opinion the fees we charge are affordable at an average of around 3% per customer per month,” says Olaogun.
“In fact, if we could, we would prefer not to charge default payments,” he says. “This is because our aim isn’t to just make money on credit, but to impact the lives of Africans.”
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