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    The Buy Now, Pay Later (BNPL) is a fast-rising sector in the FinTech industry. There are various popular BNPL platforms in Nigeria. They include Spredda, Easybuy, CDcare, The Alternative Mall, Zoomba and so many more. Several BNPL platforms have attracted venture capitalist funding. According to a 2022 report by CISON, the BNPL payment are expected to grow by 111.2% to reach $1,920.3 million in 2022 – forecast to 2028. 
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According to Investopedia, Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. Also referred to as “point of sale installment loans,” BNPL arrangements are becoming an increasingly popular payment option, especially when shopping online. Starting a BNPL platform requires understanding the rudiments and requirements that make it a successful venture. Venturing into BNPL is still quite nascent compared to other sectors in the FinTech industry. In this article, I discuss seven must-needed features for BNPL.
  • BNPL Is A Quick Installment Payment Service

The core of BNPL is in its point-of-sale installment loans. It is all about offering quick loan services. It involves a loan application that is either approved or declined, depending on the consumer’s financial history. If the borrower is deemed creditworthy, the loan is approved and goes on to pay interest over a pre-determined period.
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For example, BNPL means that if the car costs the sum of 1 Million Naira, the consumer can pay for it in 3 installments of 333,000 Naira each over 3 months.
  • BNPL Is Discount-Based

BNPL runs on a discount model. This is when consumers have access to free services, but the merchant pays a discount rate (MDR). For example, if a laptop costs the sum of 10,000 Naira when it is sold, the trader gets something like 9,700 for selling it. Therefore, the BNPL provider obtains the remaining discount rate.
  • BNPL Runs Effectively On Spreading Payments 

If you want to see higher sales conversions as a merchant, you should adopt payment spreads over multiple months to lighten the load on a consumer’s cash flows. For example, when merchants sell more goods, they will be willing to pay the MDR if they use BNPL. To illustrate further, a dealer would rather sell ten cars and collect 970,000 Naira per sale than sell five cars and collect 1,000,000 Naira per car.
  • BNPL Is About Discretionary

The user of BNPL must be able to have customers whose finance history is creditworthy. Hence, BNPL works best when the purchase is discretionary. 
  • BNPL Works Effectively With Credit Quality Customers.

BNPL is all about having good credit quality customers that use its platform.
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The BNPL provider has many costs, if the merchant discount is 3%, the BNPL now has to pay:
  • Cost of finance
  • Operational costs 
  • Credit losses
In the example above, if the credit losses go to 2% the BNPL provider suddenly starts losing money. This increases the borrowing rate.
  • BNPL Works Well On Loan-For-Product Model

BNPL has a high conversion rate of at least 75-80% of approved consumers for the BNPL product. For example, a BNPL platform can gain more conversions, if the loan approved will be used to buy the company’s product.
  • BNPL Is Frictionless 

To get more merchants and users on your BNPL platform, the process must be tech-driven, seamless, and embedded. 

Final Words

BNPL is a very interesting FinTech service that is highly needed in an emerging market like Nigeria due to several reasons. First, Nigeria is a middle-class economy where people live from paycheck to paycheck, which has made it difficult for them to meet their needs. And people often have to let go of a significant part of their earnings, if not all, to purchase things. Hence, this makes it profitable for BNPL to establish its startups in Nigeria. Featured Image Source: Empower2Free
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This article was first published on 29th June 2022

nnaemeka-emmanuel

Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.


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