The Rise and Rise of Buy Now Pay Later in Africa
While Black Friday and Cyber Monday initially started off as an American pastime, the growth of e-commerce has seen this tradition spread its roots globally. In Africa, for example, Jumia, one of the biggest e-commerce players on the continent, reported that its top sellers recorded a 141% increase in items sold for Black Friday.
E-commerce is just one of the levers that is spurring this growth. Buy Now Pay Later (BNPL) programs are another lever that are not just leading to the increased adoption of Black Friday and Cyber Monday but the increased adoption of e-commerce generally.
A BNPL program allows a consumer to purchase products on credit then pay for them in a predetermined number of instalments. You may think that a BNPL program is similar to a credit card but there is one major difference that exists between the two. A BNPL program allows a consumer to repay for a product over a fixed duration with low to zero interest rates while credit cards allow a consumer to carry a balance indefinitely. Credit card issuers will task you with making minimal monthly payments but interest accrues on the balance owed until you complete payment.
Despite BNPL being the newer entrant in Africa compared to credit cards, it is making more headway. One of the main reasons behind this is the ease of getting access to BNPL compared to credit cards. For most credit cards, issuers rely on a consumer’s spend history + credit scoring in order to assess whether to give an individual access to a credit card or not and this usually takes a number of weeks. BNPL providers, on the other hand, rely on other data sets that allow them to offer their services to consumers in a matter of seconds.
According to a recent Juniper Research report, ecommerce fraud is expected to grow by 18% to $20B in 2021. Despite this, BNPL programs are growing because they allow for a lender to underwrite a finite and specific risk, as opposed to an unlimited blank check. The product being purchased and the amount being underwritten, under BNPL, are also known in advance and most of the remaining risk is around verifying the identity of the payer to ensure that the source of funds are legitimate.
Afterpay, one of the biggest BNPL players in the world, stated that by implementing verification services, biometrics and machine learning algorithms, they have reduced their losses associated with fraud to under 1% of its global sales. If more e-commerce companies are to adopt verification services, there is a high likelihood that the fraud they are experiencing would significantly reduce.
“A major risk lies in fraudsters’ ability to use stolen credentials of good, trusted customers to open new accounts. Implementing tools that can check this in seconds without interrupting the application process will help retailers and BNPL providers to spot and stop such fraud attempts. The ability to use a mix of physical and digital attributes to verify an individual’s identity, and dynamically add layers of verification where required, could help further minimize fraud risk to providers.” Francis Bignell, The Fintech Times
Smile Identity offers BNPL providers and other companies identity verification services that allows them to onboard verified authentic users and businesses quickly. With Smile Identity’s (Enhanced KYC + SmartSelfie™ Product), BNPL providers can confidently focus on scaling their services across Africa, while trusting Smile Identity to help them detect and prevent identity fraud.
“Smile Identity enables us to onboard customers more securely, mitigating fraud risks and allowing for a more confident business growth.” Irshad Muttur, Chief Operating Officer, Aspira
If you are looking to scale your solutions in Africa while maintaining the integrity of your consumer base, reach out to us on sales@smileidentity.com.
