ARTHUR GOLDSTUCK: BNPL wants your wallet

Buy now, pay later (BNPL) is described as the first truly new financial services product since the launch of credit cards in the 1950s, despite bitcoin adherents claiming that landmark for cryptocurrency.

However, while the evolution of the latter has been driven more by speculation than by transactions, the BNPL industry has also had an image problem. Because its innovations have been dominated by unknown start-ups, it has often been seen as a suspect sector — although nowhere near as dodgy as crypto.

Then, last month, Apple announced Apple Pay Later, which would allow users to pay for purchases with monthly instalments — and without interest. For many, that seemed to be the death knell for BNPL start-ups. In reality, however, it provided newfound credibility.

In the same way that Apple cannot take over the virtual reality or autonomous vehicle industries simply by announcing its own offerings, it will only be one of many players in the e-commerce instalment game.

And it will be playing catch-up.

“BNPL is now an established payment alternative in the e-commerce market,” says Paul Behrmann, founder and CEO of Payflex, a leader in the South African BNPL market.

In January, Payflex was acquired by the dominant Australian digital retail finance company Zip Co, and has expanded its offering into physical stores.

Zip first took a 25% stake in Payflex in 2020, when it put the size of the global addressable market for this sector at $22-trillion (about R373-trillion) — with SA potentially contributing $67bn.

“Payflex allows shoppers to pay for their online purchases in a series of four equal interest-free instalments,” says Behrmann.

“Customers can apply in seconds and pay with any Visa, Mastercard or American Express card. The BNPL offering has been expanded by the entry of new competitors to the market, including PayJustNow and TymeBank.”

PayJustNow customers pay in three instalments, with the first at checkout, and the next in consecutive months.

Behrmann says that while BNPL continues to grow strongly globally, it is still relatively new in SA, but rapidly taking root. Payflex is available at more than 1,800 online merchants and has trebled turnover in each of the past two years.

“South African consumers — at least in the online space — are behaving similarly to consumers in more developed and mature markets,” he says. “The core market for Payflex is younger users who are credit savvy and early adopters.

“Most customers have access to other credit products, like credit cards and unsecured loans, but are choosing to use interest-free BNPL instead of expensive credit for smaller purchases that can be repaid over six weeks. The average Payflex basket is R1,200, with fashion as best use case for the product. Around 55% of Payflex BNPL orders are for fashion items.”

The company faced two challenges that every BNPL entrant has to address: access to merchants, and educating customers about the benefits of a new financial product.

“These challenges have largely been solved,” says Behrmann. It helped that Payflex launched with a major fashion player, Superbalist, in 2019. Now, according to a recent survey conducted by Payflex, 48% of the relevant target market is aware of its service.

The sector has taken a knock from the stock market crash in tech shares, but that affects investors rather than users. Many large players, such as Affirm, Zip and Block, are down 80%-90% this year. Higher interest rates, increased cost of funding and a poorer macro environment resulting in more defaults and higher risk costs will also hamper BNPL growth.

However, Behrmann is upbeat about future prospects.

“BNPL is destined to be a product in everyone’s wallet over the coming years. In the South African context, BNPL will grow in the online space, and then start to move into in-store retail as simpler BNPL payment methods are made available to consumers for in-store purchases.”

• Goldstuck is founder of World Wide Worx and editor-in-chief of Gadget.co.za