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- Buy now, pay later payment schemes are soaring in popularity in South Africa.
- One firm reported a 250-fold increase in sales volumes over the last four years.
- Spreading payments out into multiple instalments is particularly popular among millennials.
- For more stories, visit the Tech and Trends homepage.
A financing alternative to credit cards is soaring in popularity in South Africa, especially among millennials.
Buy now, pay later (BNPL) allows for payments to be made in instalments rather than a single lump sum, and is available on many of South Africa’s largest e-commerce platforms, including Takealot.com, Superbalist, and OneDayOnly.
Essentially, traditionally structured BNPL systems provide consumers an interest-free option to make payments for goods in instalments.
Wesley Billett, the co-founder of Happy Pay, a South African BNPL firm, said in many cases BNPL payment structures provided a better alternative to credit, but stressed the importance of using BNPL responsibly.
“We believe it is better than a credit card because you then force people into a situation where they are just rolling over a monthly facility.”
He said that when used responsibly, by checking the ability of a client to make their monthly repayments, BNPL provided "equitable access", because a fee is generally not charged if all payments were made on time and the product is interest free.
“The problem is that when they don’t [use BNPL for what customers can afford] BNPL can become quite expensive because they lend to people who can’t afford to pay it back."
He said “huge late fees” then got levied if payments were not met, which made it “more expensive than pretty much any other credit product”.
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These late fees can reach as high as 25% of the transaction value.
Billett said it was important for BNPL firms to check more than just credit scores when awarding a facility to a client as this only provided an indication of a customer's past propensity to repay debt and not their current ability.
He said just relying on credit scores when awarding debt, especially in South Africa where people are “credit addicted”, could create problems for people.
Happy Pay also looked at a client's disposable income over a number of months, which was assessed before a facility size was selected.
Immense growth
Billett said there had been “immense growth” of the spending type as millennials had replaced credit cards with BNPL.
Other South African BNPL firms were reporting the same thing.
News24 revealed in April that Payflex, South Africa’s first and now largest BNPL company, reported a 10-fold increase in sales volumes over the last two years and a 250-fold increase over the last four years.
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Payflex said the majority of its clients were between the ages of 25 and 34.
Another South African BNPL firm, PayJustNow, shared data with News24 which showed that 71.6% of their registered customers were younger than 40.
The largest cohort of registered customers were between 30 and 35 years old.
PayJustNow was started in 2019 and had over 800 000 registered customers and over 4 900 points of presence.
PayJustNow's CEO, Craig Newborn, told News24 that the BNPL sector was undergoing "exponential growth" both locally and abroad.
He said:
He said PayJustNow tripled their customers in 2022 and picked up 41 000 new customers in March 2023 alone.
Newborn said nearly 60% of their users returned after making their first BNPL payment.
Billett said BNPL fell into the embedded finance category, which was set to quadruple in value in Africa during this decade.
A Statista poll conducted last year among United States respondents showed that millennials were the stand-out age cohort using BNPL schemes.
The poll found that 56% of respondents born between 1980 and 1994 said they made use of a payment scheme that allowed for payments to be made in instalments.
This was closely followed by Gen-Z respondents, where 49% said they made use of BNPL.
