THERE’S no better source of creative inspiration than a good ol’ problem. For many entrepreneurs, Covid-19 was this problem and from it came a wellspring of innovations across all sectors, despite the obvious drawbacks.
The past few months have seen the welcome migration of the “Buy Now, Pay Later” (BNPL) model of consumer credit to South African shores and it’s a game-changer for small and medium-sized enterprises (SMEs).
The BNPL model can arguably be traced back to the early 19th Century and has its roots in what we refer to in South Africa as the “lay-buy” system. The basic premise of the BNPL service is that consumers can pay off goods in three to four instalments interest-free, at point-of-sale.
This model has become increasingly popular overseas, with millennials and Gen-Zs snapping up the chance to buy their favourite fashion and pay it off. Clever retailers have added a gamification element to BNPL, making it “trendy” and warranting whispers that the model might herald the beginning of a new era in consumer credit.
“How is it possible for retailers to offer interest-free credit?” And more importantly, “how is the BNPL model monetised?”. These are questions that are often raised. It’s simple. Merchants pay BNPL service providers a fee, which usually amounts to a percentage of the purchase amount or a flat fee per transaction. BNPL companies, like credit-card issuers, pay the merchants and then recover money from the consumers.
This model is slowly but surely carving a niche for itself between cash transactions and long-term credit solutions, and for many SMEs around the country, this means greater accessibility to wider target audience groups.
FinTech and payments provider, Adumo recently announced its partnership with new kid on the block, TymeBank to extend the MoreTyme BNPL payment offering to South African SMEs. This is good news for SMEs who have felt the brunt of the pandemic acutely over the past few months, particularly with the emergence of the 4th wave, which ultimately has led to consumers tightening their purse strings.
With SMEs being able to offer a credit solution that has the potential to drive revenue and increase footfall or unique site visits, the BNPL model is a welcome addition to the FinTech space in South Africa. As the system gains traction; particularly among younger shoppers, more competition for the handful of BNPL providers will emerge, creating a healthy market. Watch this space.
Partnering with a BNPL provider at this early stage in the game, will require an investment of time and resources in the sense that this technology will need to be integrated into all point-of-sale devices to ensure a smooth checkout process for customers.
There are also considerations to be made around partner fees and how that will affect your bottom-line. Deciding whether to take the plunge will depend on whether the cost of adding a new payment solution is justified by the demand for it, within your target audience.
As we head into a new year and welcome the prospects that 2022 will bring, SMEs should take the time to consolidate, budget carefully and find opportunities for growth. This may take the form of adding this new payment solution, trialling it and being strategic about staying ahead of the competition.
If capital for this integration is not immediately available, that growth could be expedited by taking on credit to give your business the impetus it needs to take on the challenges and the opportunities presented by the current economic climate.
The future of credit as we know it is evolving, and is opening up more opportunities for SMEs to grow their customer base and their businesses – don’t get left behind.
Ben Bierman is managing director of Business Partners Limited.
BUSINESS REPORT ONLINE