Buy Now Pay Later Offerings in Nigeria: Some Market Entry Considerations
Africa presents an interesting proposition for point-of-sale financings commonly referred to as Buy Now Pay Later financing (BNPL). However, there are important distinctions in the local Buy Now Pay Later industry in Nigeria. In this update, we outline some of the defining features of the local BNPL industry, which would become useful in thinking about market entry. A general overview of local credit conditions may also be useful. Nigeria’s Central Bank ( CBN) regularly publishes a credit conditions survey report. The latest report is available here
(a) Low Credit Card Penetration
Many sources report that credit card penetration is very low in Nigeria. According to a source, only about 3% of Nigeria’s 200 million plus population owns a credit card and in a ranking of 137 countries worldwide, Nigeria was 124th, in terms of estimated credit card penetration. When viewed within the context of an increasing middle class, we think this gap creates a significant opportunity for Buy Now Pay Later providers looking to play in Africa.
(b) Hard and Soft Inquiries
The incidence of bad consumer debts and consumer fraud remains a major problem for local lenders as lenders often struggle to recover bad loans. Nigeria’s primary development finance bank has noted that non-performing loans to entrepreneurs is almost at 100%. The CBN has also noted that Non-Performing Loans are above the regulatory minimum. For these reasons, we think, a combination of hard and soft inquiries in a way that does not unduly hamper the customer purchase journey would be a useful tool for Buy Now Pay Later players in Nigeria. We think that Buy Now Pay Later players who are able to deploy advanced technological capabilities around fraud detection, credit scoring and deep integrations into order management systems of merchants to access relevant SKU data, would lead in this category.
(c) Interest & Charges
Local Buy Now Pay Later offerings are likely more of a digital credit card play without the card. Buy Now Pay Later providers in Nigeria typically a levy a form of interest on charge or charge on consumers. We think that Buy Now Pay Later players who are able to roll out pay-in-4 interest/charge-free Buy Now Pay Later products, whilst also leveraging new revenue drivers and further monetising consumer engagement will likely drive more merchant adoption and lead in this category.
(d) Licensing & Regulatory Framework
Local Buy Now Pay Later players typically rely on a banking license as legal basis and cover for their operations. Banking licenses require a minimum share capital requirement and regulatory approval to operate. BNPL promoters who meet the requirements during the application process will typically not have any issues with procuring the relevant licenses. There are also sub-national licenses that allow BNPL providers to operate within a limited scope. Both frameworks come with distinct pros and cons and impose minimum standards lending businesses. Founders must determine suitability, based on their business models, monetisation strategy and product offerings because a determination of the applicable legal framework is highly case-specific. For instance, existing payment service companies intending to play in the Buy Now Pay Later patch will ordinarily be required to obtain a lending license for this purpose. This is likely not to be the case where such payment service companies partners with a licensed financial institution to provide a Buy Now Pay Later offering. From a licensing standpoint, these scenarios are also different from a pure play vendor financing offering. There is also likely to be more regulation from a consumer protection standpoint. Nigeria’s consumer protection agency has announced plans to issue regulations binding on digital lenders.
(e) Foreign Investment Regulation
Nigeria’s foreign direct investment laws are relatively friendlier than what one would find in other West African countries. As an example, foreign investors can own 100% equity in local “tech” subsidiaries without mandatory local participation and are guaranteed unconditional repatriation of capital and profits, provided that investors comply with minimum registration requirements.