A recent TechCrunch article describes the emergence of buy now, pay later services in Egypt and Nigeria, suggesting a larger trend that may bring affordable financing options to consumers across the continent.
“Last week, Nigerian digital bank Carbon introduced Carbon Zero, a product that lets customers purchase electronics and gadgets while paying in small installments at a 0% interest rate. However, before a purchase is made, a percentage of the total cost is paid upfront. After that, customers can pay the remaining price over six months.
There are different reasons why such services hardly exist on the continent. For one, the country’s credit infrastructure is still a work in progress, and most of its citizens have limited purchasing power. So how does Carbon plan to assess risk?
The company started in 2012 as a digital lender. But it has since grown to become one of the country’s few digital banks providing different financial services to its more than 659,000 customers. With extensive experience and a track record of providing loans to Nigerians (in 2020, its loan disbursement volume was $63 million), Carbon has found itself in pole position to enter the buy now, pay later market with Carbon Zero.”
In Nigeria, where the monetary policy rate was at 11.5% as of January of 2021 and 60% of its population was underbanked, access to cheap credit is limited. The emergence of zero interest BNPL loans is encouraging as it has the potential to expand access to financing for large segments of the population and boost the economy as a consequence. The emergence of Carbon Zero is only the first step in expanding access to affordable credit as it is available only for people with an monthly income of $500 or higher.
Similar BNLP market players are emerging in Egypt, with Shahry, an online BNPL services provider started by the founders of an online marketplace Yahoota.
“The founders launched Shahry targeting the underbanked part of its young population to pay for products in installments, going head to head with the banks that offered similar services, albeit via credit cards.
“We’re currently the only buy now, pay later app in Egypt that offers a fully online service with no physical friction or paperwork from signing up to product home delivery,” the CEO ElRakabawy told TechCrunch.
While Shahry’s model does not require a down payment, it does require that users apply for virtual credit through their mobile app, which they use to buy products from Arab e-commerce giant Souq. The company determines creditworthiness using algorithms and a credit risk review based on customer data. The company is also working on an AI model for fully automated instant decisions.”
It is important to note that the development of the BNLP services is being driven by the adoption of digital technology across the continent, with the main target market being members of the online shopping eco-system. This is not an accident as digital financial services present themselves as superior alternatives to the oft underdeveloped brick and mortar banking services on the continent, such as traditional credit cards.
Digital technology allows for the use of big data to efficiently assess risk and helps expand access to underbanked segments of the population. The rise of online BNPL in Nigeria and Egypt is in line with global trends, evidenced by the fact that 74% of BNPL users surveyed in Mercator’s bi-annual North American Payments Insights survey used it to finance online purchases.
It will not be surprising to see the next BNPL digital product emerge in Kenya, where internet penetration is relatively high, in large part induced by M-Pesa, a mobile phone-based money transfer service. Other countries with M-Pesa include Mozambique, DRC, Lesotho, Ghana, Egypt, and South Africa.
African countries will face a set of challenges such as a lack of political and economic stability across much of the continent, as well as low levels of seed funding. These setback however will not stop the BNPL momentum as internet access and consumer spending continue to rise, and investors realize the potential of opportunities in a vast untapped market.
Overview by Sam Klebanov, Research Analyst at Mercator Advisory Group