Getting Started As A BNPL Service Provider — 5 Key Things You Need to Know

The future of credit is here. It’s Buy Now Pay Later, and it is here to stay. Even better, consumers are here for it.

Before we dig deeper though, in this article, we touch on the following concerning Buy Now, Pay Later:

• How we got here
• The definition of Buy Now, Pay Later
• The impact of BNPL on e-commerce
• The Nigerian BNPL ecosystem
• Getting started as a BNPL service provider

Moving ahead…

According to the Q4 2021 BNPL Survey, BNPL payment in Nigeria there is an expected 111.2% annual growth which will reach US$ 1920.3 million in 2022.¹

How we got here?

Poor access to credit.

The various ways consumers can access credit are broken, and consumers are desperate for more options.

1. The faulty loan process: Nigeria doesn’t have a rich credit history. As such, many loan processes still involve lengthy forms, collaterals, and guarantors before approval. Considering personal loans is typically how consumers would access credit when they have an immediate need to solve, it’s exhausting to have to revisit this tedious process whenever they need a loan. Consumers are also fed up with the ridiculously high interest rates and dehumanising loan repayment strategies when they are late on their debt. With consumers constantly facing these problems, it’s no surprise that they would jump at any opportunity to avoid such.
2. Low penetration of credit cards: Credit cards were introduced to aid the credit issue faced locally and globally. However, a report by Accenture on the BNPL industry in the US says users of BNPL services choose not to own credit cards because they want to avoid interest, fees, and debt². The poor acceptance of credit cards does not elude Nigerians with the penetration of pay-later cards in Nigeria is low at 0.7 cards per 100 individuals. The adoption of credit cards in Nigeria was stalled owing to economic uncertainty in the country, which led banks to become conscious about consumer lending³.
3. High interest rates: While some lenders already leverage products like Originate and Decide to solve for the lengthy process and risky loans, consumers still tend to deal with high interest rates from certain loan providers. Especially those who consumers call loan sharks. Loan sharks take advantage of the desperation of borrowers by offering ridiculous interest rates with early due dates, and when these borrowers default, which is often the case, they seek repayment by sending embarrassing messages to their contacts.

With these issues, it’s no wonder that consumers are actively seeking a way out. And, with BNPL taking centre stage, Nigerian consumers may finally be getting their wishes granted.

BNPL products address these issues by offering low to zero interest cost loans to a wider pool of customers who are underwritten not only based on their credit scores but also, many other alternative data points.⁴

Buy Now Pay Later is similar to taking a personal loan. Typically, people request loans to solve an immediate problem. Whether consumers are trying to purchase products to furnish a house, buy a car, pay school fees, or sort out their rent, there is often an immediate need they want to satisfy.

What is Buy Now, Pay Later?

Buy Now Pay Later popularly referred to as BNPL is a financing method where consumers are allowed to purchase an item now, and pay for the item in instalments later — over a set period.

With BNPL, consumers don’t pay for the items they want to purchase all at once. Instead, they pay only a portion of the price upfront, spreading out the remaining cost over a predetermined number of equal instalment payments. These payments are often interest-free, and the approval process is fairly fast for consumers.

BNPL impact on the e-commerce industry

While it appears BNPL serves the e-commerce market the most, businesses are finding opportunities to go beyond e-commerce. For instance making provision for car purchases, rent, school fees etc.

The e-commerce industry however, is bound to see exponential growth, and stands to benefit a lot from the growing BNPL trend.

From this chart below, we can see what the e-commerce industry looks like in terms of growth over the next few years.

On a global scale, we can also see that BNPL in e-commerce has seen consistent growth.

BNPL is a win-win situation for consumers and retailers.

According to a report by Accenture, BNPL, while creating $590 million in cost savings, has enabled merchants to gain $8.2 billion in new revenues. It was discovered that when merchants offer BNPL to shoppers, they tend to buy more.⁷

The seller gets instant payment and increased cart value, increased conversion rates and overall footfall and the consumer gets affordable solutions that increase her purchasing power.

Buy Now, Pay Later in Nigeria

Medium to long term growth story of BNPL industry in Nigeria remains strong. The BNPL payment adoption is expected to grow steadily over the forecast period, recording a CAGR of 54.0% during 2022–2028. The BNPL Gross Merchandise Value in the country will increase from US$ 909.1 million in 2021 to reach US$ 25615.9 million by 2028.⁸

Millennials and Bridge Millennials having been identified as the early adopters of BNPL globally, are likely the demographic that will facilitate these numbers.⁹

With millennials and bridge millennials accounting for 39.81% of Nigeria’s labor force, it’s evident that a serviceable market for BNPL exists.¹⁰

Some of the providers that stand to facilitate these numbers for this demographic are LipaLater, Carbon Zero, Zilla Africa, CDCare, AltMall, etc.

Getting Started with Buy Now, Pay Later

1. As a financial service provider: As a financial service provider looking to get a slice of the BNPL market, you need a working credit system. Due to the lack of credit data, creating one might be difficult, hence, financial services can instead leverage credit decision engines like Decide which uses alternative data to check for a consumer’s eligibility in less than two minutes. This way, approval for online checkout POS (point-of-sale) loans are fast for consumers and risk-free for payment providers and vendors. BNPL providers like LipaLater and Zilla Africa use Decide to facilitate their BNPL process.
2. As an e-commerce store: As an e-commerce store that wants to offer BNPL at the point of checkout, you need two things — financial service providers with a working credit system and the ability to split payments at the checkout point, and vendors willing to receive instalment payments for more purchase quantity.

In essence, we are gradually seeing BNPL take centre stage in various areas, from e-commerce to retail, rent, and even schooling. However, as flourishing as the BNPL industry is looking locally and globally, providers need to set up risk-free processes that will propel its success. These processes, from the tools to the model should be consumer-friendly without compromising profit for both the vendor and the provider.

References:

1. Nigeria Buy Now Pay Later Business and Investment Opportunities Databook (1, 8)
2. The Economic Impact of Buy Now Pay Later in the US (2, 7)
3. Nigeria Buy Now Pay Later Report 2021 (3)
4. The Rise of Buy Now Pay Later (4)
5. The Next Wave: Buy Now Pay Later is Worrying and Exciting (5)
6. Global Payments: The Power of Buy Now Pay Later (6)
7. BNPL — Millenials and the Shifting Dynamics of Online Credit (9)
8. Buy Now Pay Later — The Latest Era of Consumer Financing (10)