Buy Now, Pay Later—the latest era of consumer financing in Nigeria

Buy Now, Pay Later (BNPL) is the latest trend in global consumer-financing and Nigeria is not too far behind. This article looks at the major players and how they are navigating this novel terrain.

In 2018, Trading Economics pegged the average monthly living wage in Nigeria per individual at 43,200 naira. Three years down the line, with the inflation rate at 17.38%, a struggling Naira, and a decline in other economic indicators, it is assumed that the pressure on the disposable income of the average Nigerian is at an all-time high.  

Due to this pressure, acquiring new assets such as mobile gadgets, laptops, and home appliances while paying the total cost of acquisition at the point of purchase has become a herculean task that leaves a deep hole in the buyer's pocket. This, coupled with the need for merchants to drive sales, has introduced a form of short-term asset financing known as Buy Now Pay Later — BNPL.

Buy Now Pay Later is a form of short-term financing that allows individuals to purchase items and claim immediate ownership by paying a portion of the cost now and spreading the balance over an agreed period. Since most merchants who offer BNPL do not charge interest on the purchase, it comes as a cheaper alternative to taking up loans to acquire the same item. Also, the allure of paying in installments makes it a pocket-friendly option.

BNPL in Nigeria—who are the players?

"The choice of paying 13,000 naira over two months and taking possession of a brand-new Hisense speaker after the first installment was so easy for me," says Eleazar, who purchased a Hisense AUD2021 speaker from CD Care sometime in April 2021.

CDCare is one company that currently enables individuals to acquire gadgets and home appliances while paying over twelve installments or less at 0% interest rate. CD Care also offers users the option of insuring the item.

Speaking with Tobi Odukoya, CEO of CDCare, their strategic partnerships with manufacturers and distributors have made it possible to quote products at the prevalent market price.

"It is important for me to mention that CDcare easily boasts of quoting products at the normal market price, and this is possible because of our strategic partnerships with manufacturers and topmost distributors of original brands in Africa. We usually tell our customers to compare our prices and tell us if they find any store that sells reasonably lesser than what we sell on CDcare, and we will immediately try to review the price. However, users should be careful where they compare prices as there are many substandard/fake products in the market that sell copy- product for lesser amounts."

In January 2021, Carbon, one of Nigeria's foremost digital lenders, launched a new vertical—Carbon Zero.

Carbon Zero offers users the opportunity to purchase gadgets and home appliances at a 0% interest rate. Also, partner with strategic merchants who handle the sale of the items to users while Carbon Zero ensures repayment.

Despite the flexibility in terms of payment and the perceived affordability of BNPL, there are concerns that the prices of items quoted by BNPL providers are significantly higher than what is offered in physical outlets or even other Non-BNPL eCommerce sites. As a result, there are questions as to whether BNPL providers in Nigeria who market themselves as providers of 0% short-term financing are true to their words.

However, a quick comparison reveals that this might not exactly be the case. For example, a brand new MacBook Air 13" M1 8GB RAM 256GB SSD goes for 578,752 naira on CDCare. When the same name is searched on Jumia, the two items that match the earlier gadget go for 570,000 naira and 630,000 naira, respectively.

Another comparison, this time, the Infinix Hot 10T 4GB RAM, 128GB ROM, showed that CDCare was the cheaper option as it was about 15,000 naira less than the gross value of the same product quoted on Jumia.

For individuals like Folaremi, the cost implication is critical when deciding whether to take the BNPL approach or other conventional means. "It's usually not worth it at the end of the day. I do not see the value in paying 20% more for an item and then spread the payment over installments. When I wanted to buy my current phone, I explored BNPL, but the economics didn't make sense. I decided to pay for the phone in full rather than pay in installments."

"I think platforms that do such are just shooting themselves in the foot," says Tobi.

"Our users can easily compare prices online, Jiji, Jumia, Konga, etc. are only a few clicks away in this out internet world. The average bank-loan interest rate in Nigeria today is less than 3% per month (sterling specta, WEMA loans, etc.) that's less than 36% internet per annum.

So, suppose you are selling a N100K item for N140K over a period of 6 months. In that case, that means that you are secretly charging the customer 80% interest per annum - most people will find out, and a creditworthy person will easily get a bank loan instead. You will be left with the non-credit worthy customers, and that is the reason for the high defaults."

Managing defaults within BNPL

In a low trust economy like Nigeria, with the credit infrastructure still in its infancy, the BNPL model comes off as an arduous model to execute. Managing default remains at the forefront of the sustainability of the model.

On how CDCare manages its credit risk, Tobi says they had to develop an in-built independent credit check and KYC system.

"With respect to CDcare, we have our own independent credit check and KYC system built into the CDcare product. In addition to that, the gadgets and appliances that we deliver to our users serve as collateral. Our users are not legally owners of the items that we deliver until full payment, so we have the chance to retrieve the item on default. Our users understand the risks of defaulting and make sure to choose the installment pattern that they can easily afford; we have the most flexible installment plan presently - Nobody else offers up to 12 months payment plan."

Zoomba.ng, a quasi BNPL platform that brings buyers, sellers, and financial institutions together, offers different payment options to users. Users can make a 20% down payment, take possession of the item, then finance the balance through a partner financial institution that charges a monthly interest rate of about 3.5% to 4%. Another option is for the user to pay 40% of the item's value to display a commitment to purchasing the item then pay the balance over an agreed period.

Salami Segun, a BNPL enthusiast and the Business Development Manager of Zoomba.ng, believes that their business model reduces the risk of default to the barest minimum.

"The fact that every purchase that involves any form of credit is backed by a partner financial institution who handles the credit evaluation and disbursement has helped keep our default rate at 0%. For an early-stage start-up that has received applications to the tune of 9.8 million naira and successfully funded 3.8million of those purchases with 0% default, it gives credence to our system. However, there's still more work to be done."

The Future of BNPL

For BNPL providers like CDCare, scaling is the next item on the agenda. Tobi added that CDCare would soon start financing the acquisition of brand-new cars while also revealing that they are currently fundraising.

"CDcare will soon begin to provide payment plans for brand new cars. We are already in talks with a few brands. We are currently trying to connect with Toyota and Innoson, and as such, we will be glad if we can get help with reaching out to these brands. We are currently raising our pre-seed round. We have many big things in the pipeline, and we will surely let you know when we are ready."

Also, findings from PYMNTS' research report - Buy Now, Pay Later: Millennials And The Shifting Dynamics of Online Credit, revealed millennials and bridge millennials to be the early adopters of BNPL. The report showed that 9.6% of millennials had used BNPL as of September 2020. This represents a 27.1% increase from the first survey, which took place in March 2020.  

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

Although there are arguments that Nigeria's credit infrastructural deficit might inhibit the growth of BNPL, recent developments like the rise of product-focused API FinTechs like Mono and Okra suggest that a renaissance is just around the corner.

Also, the Babajide Duroshola led expansion of M-Kopa into Nigeria, the recent acquisition of South Africa based BNPL provider, Payflex by Australian BNPL company Zip, alongside the existing BNPL providers in the space, signals that Nigeria might be ready for a BNPL explosion.

Outside the shores of Africa, Afterpay's acquisition by Square Inc and Klarna's most recent raise of $639 million lends a vote of confidence in the future of BNPL.