Nigerian fintechs tap ‘Buy Now Pay Later’ to grow credit
Some financial technology (Fintech) companies in Nigeria are trying to democratise consumer lending by making it more accessible to a large segment of the population through the ‘Buy Now Pay Later’ (BNPL) model.
According to experts, this is a positive development for Africa’s biggest economy, which is already fragile and weak, as it will help to boost consumer spending, sales, economic activities and growth.
The BNPL model, the latest trend in global consumer-financing, is a form of short-term financing that allows shoppers to purchase items and claim immediate ownership by paying a portion of the cost now and spreading the balance over an agreed period.
The payment model option, which is increasingly popular with merchants and customers, is targeted at young, new-to-credit, cash-strapped millennials (those currently between the ages of 25 and 40 years). It mostly requires a person to have stable income or salary and Bank Verification Number (BVN).
“Credit has a multifaceted impact on consumers, entrepreneurs, businesses and investors. If you look at the GDP structure of Nigeria, you will discover that consumption accounts for between 60-65 percent of our GDP. So, channelling credit to households will help boost consumer spending, which in turn facilitates aggregate demand,” Damilola Adewale, a Lagos-based economic analyst, says.
He also states that for businesses, credit facilitates business transactions, especially among Micro, Small, and Medium Enterprises that may want to procure large-scale materials or equipment. “They should tap into this opportunity that also boosts commercial activities, which is a plus for aggregate demand,” he says.
Similarly, an economist who wishes not to be identified notes that most economies that run on credits are developed as they increase consumption, which is key for any economy to grow.
“The faster companies are able to move items out of their stores, the more economic activities increase thereby making people more employed,” the economist says.
Two recessions witnessed in the last five years in Nigeria have led to a high inflation rate, unemployment rate, and struggling naira, which has pressured disposable income and the weakened purchasing power of average consumers.
Due to these pressures, acquiring discretionary or new assets such as mobile gadgets, laptops, and home appliances has been less important to them.
The economy is harsher, purchasing power and income at disposal are dropping, making consumers prioritise what is important for them to spend on, Uchenna Uzo, consumer expert and the faculty director at the Lagos Business School, states.
“So, if you give them an alternative payment option where they don’t have to pay everything now, it allows them to still buy things that they would have love to buy but spread the payment such that it does not hurt other things in their portfolio of products and services they want to buy,” Uzo further says.
Findings from a recent 2020 PYMNTS’ – a platform where companies in payments share relevant information about the initiatives that shape the future of the payment sector- Buy Now, Pay Later research report, reveals millennials and bridge millennials to be the early adopters of BNPL. The report shows that 9.6 percent of millennials had used BNPL as of September 2020. This represents a 27.1 percent increase from the first survey, which took place in March 2020.
With millennials in Nigeria accounting for 58.4 percent of the total 30.5 million persons that are fully employed, it is evident that a serviceable market for BNPL exists.
“Fintechs are already licensed to give out loan facilities. They only rely on the banks that have access to people’s accounts and BVNs to collect their money in instalments. It is actually a loan. The only difference is that they now attach it to a particular item or asset,” Nejo Muyiwa, a corporate relationship client manager at Sterling Bank plc, says.
He notes: “The market has embraced it, especially given the fact that Fintechs simplified the process by making it easy and convenient when acquiring the loan unlike the banks that have cumbersome processes.”
Fintech companies driving BNPL service
With the Carbon Zero product launched in 2020, customers can purchase electronics and gadgets while paying in small instalments at a zero percent interest rate.
However, before a purchase is made, a percentage of the total cost is paid up front. After that, customers can pay the remaining price over six months.
Although Nigeria’s credit infrastructure is still a work in progress, and most of its citizens have limited purchasing power, Carbon wants to leverage on its experience as a digital lender since its inception in 2012.
“We do not believe that a firm without a track record of lending can provide a similar service, except they have a significant amount of capital to burn. Carbon has been lending in Nigeria for nearly 10 years, so we have a lot of credit history of our customers, and we believe we can assess new customers very well,” Chijioke Dozie, the CEO, said.
While Carbon offers a zero percent interest rate via the BNPL service with collaboration from merchants that are top distributors of authentic electronics and gadgets in Nigeria, fintech companies which include EasyBuy and CredPal, who are offering this service providing a variety of interest rates to suit consumers’ choice.
EasyBuy, founded in 1996 but started operations in 2019, is a mobile device financing platform created for people who want to buy phones and pay in instalments. EasyBuy provides a point-of-sale (POS) loan to intending customers who want to buy a mobile phone.
A minimum of 30 percent down payment is required and there are two loan systems that work – three months with 9 percent interest and six months with a 6 percent interest rate. There are designated shops offering the BNPL services using the EasyBuy as a model, where interested people can shop.
Requirements include a valid ID – International Passport, Driver’s Licence, National ID Card or Voter’s Card, BVN, ATM Card, and you also must be a regular income earner.
CredPal is a startup founded in 2017, which provides revolutionary credit solutions by using easy credit access for businesses and individuals across developing countries.
The company’s services allow a flexible payment option that helps businesses and individuals to buy anything and pay for it in instalments across online and offline merchants by providing them with instant access to credit at the point of checkout.
A CredPal credit card is issued to access the BNPL services and has three plans, which include Standard, the interest rate on the used facility per month is 7 percent, though it comes with just N1,000 annual fees for platform usage.
The second plan is Premium, which has a 4 percent interest rate on funds used monthly. But for service fee on yearly basis, it will cost N5,000. Prestige has the lowest monthly interest rate on facilities at 1.5 percent, while the service fee annually is N52,000.
The money required to buy any item will be assigned as a line of credit that is accessible through your card, which you can use whenever you want.
To further this model, Mastercard announced that it plans to launch a new programme in 2022 to offer BNPL services to a variety of banks, lenders, fintech companies, digital wallets, and others.
However, two application programming interface (API) fintech companies that are adopting the BNPL service include Mono and Okra. They are providing API to enable easy use of BNPL services by customers. This programming technique is being leveraged upon by other financial lending providers.