NOMQHELE DUBE AND SIPHO NGWENYA: Buy now, pay later could boost retailers and consumers

Buy now, pay later (BNPL), a payment method that allows customers to purchase products without having to pay the full amount upfront but still receive the product after the first instalment, is not new to SA but has potential to grow significantly.

BNPL products allow customers to purchase products and pay for it in instalments, usually spread over four weeks to three months, depending on the BNPL provider, some extending the payment period to longer than three months.

The outer time limit for repayments is usually 12 months (or 12 instalments) but depends on what is purchased, as items such as expensive phones and white goods can sometimes exceed 12 months, also depending on the BNPL provider.

The main selling point of BNPL products is that repayment instalments on the purchases are interest free. Worldpay, a merchant services and payment processing provider offering a payment gateway for online transactions, projects BNPL to be the world’s fastest-growing payment method between 2021-2025, accounting for 2%-3% of total online retail spend.

According to GlobeNewswire, the BNPL market was estimated at $25.4bn in 2022 and is forecast to reach $160bn by 2032, growing at a compound annual rate of 20.2%.

Klarna (Sweden) and Afterpay (Australia) are the world’s leading BNPL service providers, working with more than 10,000 retailers globally. According to the US Consumer Financial Protection Bureau, BNPL loans rose from 16.8-million worth $2bn in 2019, to 180-million worth $24.2bn in 2021.

Growth was attributed to rising inflation and e-commerce demand. McKinsey & Co says BNPL is most popular in sectors with high margins such as fashion (clothing and footwear), as the applications of BNPL models can help boost sales and customer engagement.

According to Research & Markets, the BNPL market in SA is valued at about $734m (R13.9bn). Projections indicate an annual growth rate of 97.5%, driven by factors such as a higher cost of living, rising inflation and lower disposable incomes.

Extensively available

Key players in the SA BNPL market include PayFlex, PayJustNow and MoreTyme. The BNPL trend gained momentum in SA in 2020, with a 31% increase in adoption, particularly among individuals relying on savings after job losses.

TymeBank, which became profitable in December 2023, credits its success partly to the popularity of its MoreTyme BNPL product. It is extensively available, with acceptance at more than 5,500 physical locations and 1,200 e-commerce websites.

Millennials and Gen Z-ers are the most common consumers of BNPL services and products as more than 40% of PayJustNow registered customers are aged between 30 and 35. PayFlex also reported about 20% of its clients were aged 25-34, followed closely by 18% of consumers aged 34-44, with consumers aged 55-plus reporting the lowest levels of purchases via BNPL plans at 11%. 

One distinctive aspect of the SA BNPL landscape is the absence of regulation by the National Credit Regulator, as these products fall outside the purview of the National Credit Act. This is due to BNPL not charging interest or fees and not being structured as a credit product.

While the lack of regulation presents challenges to the service providers, BNPL companies such as Happy Pay are proactively addressing these potential issues. Happy Pay is developing a forward-compliant BNPL product that prioritises stringent credit checks, including the use of bank statements, credit union data and proprietary alternative data sources. The aim is to ensure responsible lending and prevent consumers from accumulating multiple loans with different providers.

SA merchants such as Mr Price, Woolworths, and Travelstart are reaping the benefits of BNPL. This payment method has proven to drive increased sales, larger basket sizes and a broader customer base. According to PayU, consumers tend to spend 55% more when they can split payments into instalments. Collaborations between retailers and BNPL providers, such as the partnership between Pick n Pay and Mobicred in July 2023, resulted in a 70% week-on-week growth in Mobicred customers shopping at Pick n Pay.

Competitive rates

Clothing and apparel, footwear and lifestyle products witnessed the most year-on-year growth in online sales in 2023. PayJustNow reported 130% year-on-year growth and a 107% four-day Black Friday growth in gross merchandise value in 2023 due to a demand in fashion apparel and footwear. Sectors such as travel, medical and education are exploring the benefits of allowing customers to divide payments into instalments over six weeks. Mobicred’s partnership with Travelstart, an online travel booking website, exemplifies this diversification. 

BNPL providers generate revenue by charging merchants a commission for transactions made through the BNPL product. Offering competitive rates and demonstrating how a certain BNPL service can increase online traffic to their store can attract more merchants. For merchants, retailers and service providers, the ability to attract more customers, increase sales, and provide flexible payment options respectively, creates a mutually advantageous ecosystem within the evolving industry of payment solutions.

With the economy facing challenges such as rising costs of living, unemployment and economic instability, consumers are experiencing financial strain. BNPL services provide short-term and immediate solutions by offering payment flexibility without the burden of interest rates. 

• Dube is an analyst, and Ngwenya an intern, at strategic research and advisory consultancy Birguid.