South Africa Show Early Signs Of ‘JanuWorry-Induced’ BNPL Fever

January, or “JanuWorry” – as it is colloquially called to depict the extremely worrisome and stressful period that is the start of a new year and the conclusion of a period of abnormally huge spending – has many South Africans facing the consequences of festive season holiday splurges and back to school costs. South Africans, who are amongst the world’s worst savers, face additional financial pressure as unemployment rates soar, the cost of living continues to rise and Covid’s impact on the economy takes its toll. 

Experian consumer default reports show that there are significant increases in delinquency rates for personal loans and credit cards. So, many consumers reluctant to take on additional debt have opted for flexible alternative payment solutions such as buy now pay later (BNPL). This payment approach allows consumers to stagger payments over a fixed period without incurring interest.

Paul Behrmann, CEO of SA BNPL provider Payflex, says that the number of customers using Payflex has more than tripled compared to last year. “Customers can plan their purchases to stretch their payments over two salary cycles without entering into expensive credit agreements, which is especially useful in January. The dramatic increase in Payflex’s customers reflects South Africans’ preference for interest-free payment solutions like BNPL,” he says.

In addition to more customers using BNPL for festive season shopping, Payflex also claims more than a threefold increase in order values, number of orders and number of merchants.

Interestingly, average volumes during the month of December dropped closer to Christmas. “Given that Payflex BNPL purchases are from online merchants, customers were probably shopping early to allow for physical delivery in time for Christmas,” explains Behrmann. 

BNPL is a global phenomenon being taken up by consumers who have learned to shop differently during the pandemic and want to avoid taking on further debt.  While BNPL’s global market share was 2.1 percent in 2020, it is expected to grow to 4.2 percent by 2024.

Payflex was recently acquired by global BNPL provider Zip, which has millions of customers and tens of thousands of merchants in 13 countries. “Interestingly, customer default rates in SA are the lowest in Zip globally, putting an end to the idea that South Africans do not honour their financial commitments. Risk-averse consumers are looking for budget-friendly payment options, so while the credit card will continue to be a significant payment method, the alternative payments landscape has emerged as a major contender in the digital payments arena,” Behrmann adds.

Across the globe, tech and payments giants like Apple, Square, PayPal and Visa have, as of recent, caught BNPL fever too, massively shelling out cash for their respective BNPL services (for one, Square recently acquired Afterpay for USD 29 B).

Although firms like the U.S.’s Affirm, Europe’s Klarna, and Australia’s Afterpay are three of the leading players in the world’s leading BNPL markets, this segment of retail sales is rapidly becoming an increasingly competitive landscape across several markets. Investments and acquisitions are becoming a consistent fixture in a global BNPL market worth USD 90.69 B in 2020.

For instance, companies like tabby and Tamara have raised huge capital to provide BNPL services in the Middle East. Also, the U.K. fintech Checkout is a significant shareholder in Tamara; Afterpay partly owns UAE-based PostPay, and Zip acquired Dubai’s Spotii for USD 26 M after initially investing in the company last December.

Back on the African continent, the BNPL business is progressing relatively quietly but quite remarkably. In South Africa where BNPL can be thought to be developing faster than anywhere else on the continent, the likes of Payflex, PayJustNow, Mobicred, and MoreTyme (by the digital-only bank, TymeBank) are helping customers and merchants finance purchases.

Elsewhere, CDcare, Carbon Zero, CredPal, M-KOPA, Shahry, and Sterling Bank’s AltMall/AltDrive are offering variations of BNPL products in Nigeria; Shahry is finding its feet in Egypt; while Kenya is seeing similar endeavour in the form of M-KOPA and Safaricom’s Lipa Mdongo Mdongo service.

Interestingly, Africa’s biggest e-tailer, Jumia, tested a BNPL service in the past year but has discontinued the service and the company told WeeTraker that it has no plans to launch in the short term.

However, the BNPL scene remains largely isolated and lukewarm in Africa despite obvious benefits as inadequate customer education and slow adoption stalls progress. Nevertheless, it’s clearly still early days but the BNPL movement in African tech continues to show potential.

Featured Image Courtesy: Dribbble