SAFARICOM REVEALS WAYS TO AVOID TRANSACTION CHARGES

The new consumer finance model dubbed ‘Buy Now Pay Later’ (BNPL) sets the stage for an interesting play. Will it drive consumer sales amid stubbornly high inflation standing at 7.9 percent?

Will it drive conversion rates when consumers are faced with high spending cuts on account of a slowing economy?

How will BNPL navigate a landscape with a high default rate occasioned by high-interest rates (13 percent)?

Yes, although ‘Faraja’, the BNPL product by Safaricom, has an undeniable prospective market, it faces all these headwinds and more.

However, the product is not necessarily new. S&P Global Market Intelligence estimates there are more than 100 BNPL firms in the world with numbers set to increase significantly in the coming years.

The industry’s little to no differentiating factor possibly explains why the space attracts quite a bit of competition.

Its wide acceptance proves flexible payment solutions have a niche market — Heck, Apple’s entry signals a validation of this product.

The model proved popular among young consumers during the Covid-19 pandemic as e-commerce volumes soared, with BNPL transactions accounting for two percent of monies spent in 2021.

This year global BNPL transactional volumes are expected to hit Sh72 trillion, up from Sh16.5 trillion and Sh4.5 trillion in 2021 and 2019, respectively, according to GlobalData.

This phenomenal success is perhaps because of the simplicity of its business model. Fundamentally, BNPL is a “point of sale” loan with consumers paying in instalments over weeks or months, usually interest-free.

BNPL firms then charge retailers a fee for each transaction in exchange for directing shoppers to them.

With ‘Faraja’, consumers will buy goods and services from as low as Sh20 to a maximum of Sh100,000 with selected retailers.

Compared to ‘Fuliza,’ “Lipa Later” or even credit cards, the BNPL solution is ideal for individuals who want to make less of a financial commitment, even on lower ticket items.

With the strategic collaboration entered with Naivas Supermarkets, it makes commercial sense as the retailer has the most number of branches countrywide at 92.

That being said, stumbling blocks are many. Chiefly, weak consumer sentiment may result in repayment challenges. The cost-of-living squeeze is influencing discretionary spending.

Internationally, this rise in expenses is already weakening the industry’s outlook.

A number of listed BNPL players such as Klarna (UK), Zip (Australia) and Affirm (US) have seen their shares lose considerable market value in recent years.

Another challenge is the low formal retail penetration (at 30 percent in 2018) in the country which could curb future growth.

Tied to this is the worrying fact that supermarket branches have been declining over the recent past.

Nonetheless, as one of the fastest-growing segments in consumer finance, the BNPL industry has a competitive selling point.

Will it drive the market away from the small, independent shops still kings in Kenyan retail space into the formal market?

By Business Daily