The usage of buy now, pay later (BNPL) services is increasing in South Africa, driven by the country’s large population of financially unserved and underserved consumers, growing e-commerce activity, and challenging economic conditions.

A 2023 study by South African payments service provider Stitch, which surveyed over 300 consumers, revealed high usage of BNPL arrangements, with 56.5% of respondents indicating having used it for online purchases, and 41.1% when booking travel online.

These results align with data from BNPL provider PayJustNow, which reported a 105.8% year-on-year growth in gross merchandise value in 2023.

PayJustNow is one of South Africa’s leading BNPL providers, used by 36.9% of the BNPL users polled by Stitch. Launched in 2019, the service allows users to make purchases and split payments into three equal interest-free installments. It’s said to boast more than 1.3 million customers, 2,500 directly integrated merchants and 8,000 points of presence throughout the country, according to Disrupt Africa.

Speaking to BizCommunity in February 2024, Craig Newborn, CEO of PayJustNow, said that South African consumers have changed their shopping habits amid challenging economic conditions. This shift has made BNPL more popular and relevant.

“Consumer shopping behavior is shifting in line with tough economic conditions, making risk-and-interest-free options like BNPL increasingly relevant to South Africans across the income spectrum,” Newborn said, adding that BNPL usage has also increased for in-store purchases.

“As inflation continues to bite and a constrained environment places further pressure on consumers, we expect to see even greater uptake of budget-friendly interest-free payment options among South Africans across income groups.”

Similarly, Payflex, another popular BNPL in South Africa, reported a 10-fold increase in sales volumes between 2021 and 2023, and a 250-fold increase between 2019 and 2023, the company told News24 in February 2023.

Founded in 2018, Payflex was the first BNPL provider to launch in South Africa. The payment solution enables shoppers to pay in four interest-free installments over six weeks and has a network of over 1,500 online merchants and 200,000+ end-users.

The company claims its BNPL scheme has been successful with merchants, allowing them to increase sales by up to 30%. Payflex founder and CEO Paul Behrmann told ITWeb in January 2023 that BNPL drives higher basket values and increased payment frequency, with 80% of customers returning to small and medium-sized enterprises (SMEs) to buy more.

39% of the BNPL users surveyed by Stitch indicated having used Payflex, making it the most popular BNPL platform in the country.

Both PayJustNow and Payflex have been acquired by larger companies, reflecting the growth prospects of the South African BNPL market. PayJustNow was acquired in 2022 by Weaver Fintech, while Payflex was bought in 2021 by Australian BNPL firm Zip, which later sold it to FeverTree Finance in 2023.

A conducive environment

The rise of BNPL in South Africa is also influenced by the country’s demographic features. With over 27 million South Africans either unserved or underserved by existing credit facilities, and 38% of credit customers in breach or in arrears on their credit provider’s payments, BNPL is seen as an alternative to high-interest credit options provided by traditional lenders.

Another key driver is the increasing popularity of e-commerce and consumer demand for flexibility and seamless technological integration. According to the Online Retail in South Africa 2023 report, online sales grew by 29% in 2023 to a value of ZAR 71 billion (US$3.9 billion). By 2026, the sector is expected to grow past the ZAR 100 billion (US$5.4 billion) mark and account for 10% of all retail sales in South Africa, up from a 6.15% share of total retail in South Africa in 2023.

Within these platforms, consumers are favoring payment methods that are meeting their expectations for speed, security and seamlessness, results from Stitch’s Consumer Digital Payments Preferences survey reveal. Cards and account-to-account (A2A) transactions are South Africans’ the preferred payment methods for e-commerce purchases, but options like Capitec Pay, an open banking payment method, and mobile money, are also gaining ground, indicating that local customers are open to innovative payment options.

Research estimates that BNPL payments in South Africa are poised to reach US$1.07 billion this year. The medium to long-term growth prospects of the sector is strong, forecasted to rise by 10.6% annually between 2024 and 2029 to reach US$1.78 billion.

Besides PayJustNow and Payflex, other companies like Float and HappyPay are also competing in the market.

Float, a Johannesburg-based BNPL startup, uses customers’ existing credit card limit to split payments for purchases into interest-free installments. Customers get to select the number of installments that they want and each merchant can then customize what they offer their customers. This approach aims to reduce default rates and avoid late fees because users are already vetted by their banks.

Float also offers an “installments-as-a-service” product, allowing merchants to use its technology to get payment installments from customers using their own balance sheet, instead of Float settling the consumer’s payment upfront.

The startup, which secured US$11 million in funding facility in March 2024, is said to have worked with almost seven million pre-approved credit cards in South Africa.

Happy Pay, meanwhile, focuses on responsible lending by performing stringent credit checks. Unlike other BNPL providers, HappyPay does not charge deposits or late penalties and allows customers to make payments over two monthly pay checks, at 50% of the purchase amount each, ensuring that salaried consumers are not put under pressure.

Featured image credit: edited from freepik