Though traditional payments and lending products still dominate the sector, founders are looking at untapped verticals to either expand on existing products or build new companies in nascent sectors.
Despite a Buy Now, Pay Later (BNPL) market that reached a global value of $125bn in 2021, according to Precedence Research, Africa is yet to make serious headway in the sector. Some estimates reckon that the market will be worth $3.9trn by 2030, leaving plenty of room for African companies if they can meaningfully tackle the space.
“The opportunity is very large,” says Babatunde Akin-Moses, the CEO and cofounder of Sycamore, a Nigerian peer-to-peer lending platform. “People are travelling and experiencing what is happening in foreign markets when you want to buy phones, cars or TVs. In Nigeria or Africa it is mostly a cash economy. But people are seeing that there is a different way things can be done”.
However, there are several reasons why the BNPL space is not that well developed in Africa. The first is that BNPL is essentially a credit product to individuals and the credit space is not particularly well-developed on the continent.
BNPL companies charge vendors a transaction fee to offer customers the ability to pay for a product over several months in interest-free payments. The firms cover the upfront cost of the goods and eventually recuperate the total amount from the customers.
Extending credit lines to individuals to buy items that do not generate income and which are not considered assets is seen as even riskier than lending to SMEs and businesses. Africa has made important strides in de-risking lending but there is still a long to go with the use of data and technology to extend credit, especially in legacy banks.
Another reason, says Akin-Moses, is that there is still a fair amount of cultural hesitancy to take on debt in some parts of Africa. “Growing up as a Nigerian, debt is so stigmatised and it is seen as a bad thing. The idea is why would I pay three times when I can just pay once?”
BNPL companies also mostly offer services digitally, on e-commerce platforms. According to data by Statista, the top five BNPL companies in the world are Klarna, Afterpay, Affirm, Zip, and Sezzle – all providing solutions on digital transactions.
Africa, in contrast, is a market where far fewer digital purchases are made online compared to other parts of the world. This makes it harder for companies to find a ready marketplace to offer their services.
A sector with strong growth potential
Nonetheless, the sector could explode over the next few years in Africa and there are an ever-increasing number of companies entering the space. Companies like Nigeria-based CredPal and Kenya-based LipaLater were founded with the specific mandate to bring interest-free finance to thousands of consumers.
Launched in 2018, CredPal raised $15m in March in a debt and equity bridge round to expand its services across Africa. LipaLater raised $12m in January to launch a similar expansion, again with debt and equity.
But as in the rest of the world where Apple, Square, PayPal and Visa are trying to get a slice of the action, some of Africa’s more established fintechs are also looking at products in the space to add to a suite of core products. Nigerian neobank Carbon introduced Carbon Zero over a year ago to provide its customers with an innovative BNPL product.
Stone Atwine, CEO of Eversend, an Uganda-based money transfer company, told Tech54 that they were also looking at the BNPL space as a way to offer more products to their customers.
Akin-Moses from Sycamore says that BNPL may end up representing anywhere up to 60% of the company’s portfolio which is currently made up almost exclusively of peer-to-peer lending. The company facilitates around $2.5m in loans between 10,000 small-sized borrowers and 300 lenders. The move to BNPL demonstrates how more fintech companies may yet look at the space as a novel source of income, with less competition.
The CEO says that the company is looking to carve out a new niche in a sector where BNPL products are not yet common.