The rise of Buy Now, Pay Later (BNPL) in South Africa

BNPL has taken off globally, particularly in the e-commerce space. There is some evidence that the trend is particularly popular as a credit alternative among millennial and Gen Z audiences, who have demonstrated more financially savvy behaviours and are generally flocking less to credit cards than their senior counterparts - as well as in markets where credit cards are less accessible. Analysts estimate BNPL will account for 12% of total global e-commerce spend on physical goods by 2025.

In South Africa, where credit has become quite ubiquitous, for better or for worse, BNPL payment adoption is expected to grow at a CAGR of 10.6% during 2024-2029. BNPL payments in South Africa are expected to grow by 16.8% on an annual basis to reach US$1.07 billion in 2024.

The growth of BNPL globally

BNPL is a relatively recent innovation. Even the oldest players in the space launched less than 20 years ago, and most launched far more recently. At a basic level, BNPL allows customers to finance purchases by paying in instalments, usually between three and six, to break up the cost of a purchase over time. Many BNPL providers offer embedded solutions that are available at the point of checkout, making it easy for customers to access this financing.

Research from FFNews estimated the BNPL market globally would grow to $232.23 billion in value in 2024, up 48.3% in 2023. It's expected to continue to grow exponentially, reaching a value of $1 trillion by 2028.

The growth, while impressive, is not difficult to understand: BNPL offers customers a way to spread the cost of large purchases, making them easier to manage, while for merchants it offers an appealing payment method that leads to markedly higher purchase rates and order values.

Some of the world’s most valuable tech startups are built on BNPL business models, such as Afterpay in Australia, Klarna in the EU and Affirm in the US. Today it’s also a key feature in embedded e-commerce offerings, allowing businesses to reach more customers and encouraging less cart abandonment.

South Africa is no different

As we’ve seen elsewhere, BNPL is popular in South Africa, which is considered to have the highest rates of inequality in the world. Analysis conducted by KenResearch found a 64% annual growth rate in the country between 2019 and 2022. 

This adoption is spurred by the fact that more than 27 million South African consumers are either unserved or underserved by existing credit facilities, and 38% of the 26 million consumers with access are in breach or in arrears on their credit provider’s payments.

This, in addition to a shift in consumers becoming more financially savvy and a desire for low interest and interest-free payment options, has led a number of startups and financial services players to enter the market, such as Payflex, Float, Happy Pay, PayJustNow and MoreTyme.

Our recent research into digital payments preferences among South African consumers found high usage rates for BNPL overall. In the travel market, 41.1% of South Africans have used BNPL when booking travel online. While in e-commerce 56.5% of people have used it for online purchases.

Some do have reservations, with several citing a lack of understanding around how BNPL works, leading them to prefer instead to pay upfront when making purchases.

Some of the uncertainty around BNPL could potentially be resolved with a clear regulatory stance. It is currently in a regulatory grey area, falling outside of the ambit of the National Credit Act, but with potential for some kind of regulation or oversight to be introduced.

Lessons from Payflex: BNPL can drive greater revenue for retailers

Retailers are interested in BNPL offerings because they’re popular among consumers, and they enable businesses to reach more consumers that wouldn’t otherwise be ready to purchase. We spoke to leading BNPL platform Payflex to understand the impact BNPL is having in the market.

According to research conducted, retailers using Payflex can see a significant uptick in revenues. Average basket values typically increase 20-30%, as more than two-thirds of customers spend more when using Payflex. 83% also shop more frequently when Payflex is available, and three-quarters say they would not have made a purchase in the absence of Payflex.

As might be expected with a newer payment method, BNPL is much more popular with younger buyers, offering retailers a way to attract them. The largest purchasing segment are those between the ages of 35-44, followed closely by 25-34-year-olds.

It also has a broad appeal across industries: the team at Payflex said those that are particularly popular are fashion and apparel, tech and electronics, health and beauty, home and decor, sports and outdoor and general marketplaces.

Payflex uses Stitch to offer customers currently in repayment an early pay option, via Pay by bank. According to the team, customers have flocked to the early payment option, with over 14,000 payments made each month.
 

Where BNPL is going next

The growth BNPL has achieved around the globe looks likely to continue, and it’s fair to assume that it will form an ever greater part of the consumer lending picture going forward. It is not known how this will reshape the overall payments landscape, though research from McKinsey in 2022 found that 62% of respondents believed BNPL could one day replace their credit card.

It remains to be seen whether regulation will be introduced, but well-calibrated regulation can be a boon to the industries that they cover, giving consumers confidence that they are safe from predatory practices.

Whatever happens, BNPL is not going away. Retailers of all types should seriously consider incorporating BNPL to their overall payments mix.