The buy now, pay later (BNPL) model has grown popular in recent years as consumers seek alternatives to credit cards and huge upfront payments. De-risking the model offers the potential for greater profitability to organisations willing to explore this space.
Buy-now-pay-later (BNPL) operates on a simple concept - customers can purchase goods or services and choose to pay for them in installments over a set period, usually with little interest. This flexibility allows customers to spread the cost of their purchase, making it more affordable and accessible.
According to Research and Markets, a global market research store, BNPL payment market in Kenya is expected to grow by 13.6 percent on an annual basis to reach $1.18 billion in 2025. Between 2021 and 2024, the sector experienced robust growth, achieving a compound annual growth rate (CAGR) of 23.4 percent. This upward trajectory is expected to continue, with the market forecast to grow at a CAGR of 9.6 percent during 2025-2030. By the end of 2030, the BNPL sector is projected to expand from its 2024 value of $1.03 billion to approximately $1.86 billion.
In Kenya and across Africa, the rapid growth of BNPL is driven by a combination of economic, demographic, and technological factors. The expansion of e-commerce platforms and digital payment systems has created a fertile ground for BNPL services. Many e-commerce platforms across the continent now integrate BNPL to reduce cart abandonment and attract more customers.
In the short term, soaring household bills and the cost-of-living crunch are largely seen as drivers of BNPL adoption. However, several factors including a quick onboarding process, ease of access, and flexible pay-over-time solutions are all increasing average cart values and adoption rates.
Expanding financial inclusion
Digitisation of commerce, particularly the growth of online shopping and availability of mobile money payments, plays a crucial role in BNPL adoption. As e-commerce continues to expand, BNPL integration is likely to become a standard feature, further driving consumer uptake.
In markets and regions outside the formal financial services ecosystem, BNPL is expanding financial inclusion by bridging the gap left by traditional financial institutions, particularly among individuals with limited credit card penetration. It offers an alternative to traditional credit, which can be particularly appealing to younger consumers or those with limited credit history.
For merchants and retailers, BNPL solutions boost sales growth and broaden their customer base. This is especially valuable for e-commerce platforms and retailers looking to enhance consumer purchasing power.
Ideally, spreading payments over time rather than paying significant upfront costs provides an appealing option to those on stricter budgets. However, despite its convenience for customers, BNPL exposes financers and lenders to new risks.
While BNPL delinquency rates remain lower than those of traditional credit products, the absence of a credit information bureau reporting means lenders and financers are blindsided and may not have a complete picture of the borrowers' existing liabilities. Additionally, without a structured credit information-sharing framework, financers are unable to fully assess customer’s ability to repay. This lack of visibility increases the risk of overextension and potential defaults, raising concerns about consumer financial well-being and protection.
Minimising risks
For BNPL companies and their respective chief financial officers (CFOs), BNPL introduces an additional layer of consumer risk that must be effectively managed. CFOs must ensure responsible financing practices and that customers are not accumulating unsustainable debt. This calls for robust credit assessment and monitoring systems to mitigate potential risks.
Kenya’s recently enacted Business Laws (Amendment) Act 2024 is expected to strengthen the credit information-sharing ecosystem, promoting transparency and protecting customers from financial overexposure.
With the Act now in place, the regulator may introduce industry-specific guidelines. However, proactive self-regulation and enhanced know-your-customer practices, can help mitigate risks before regulatory intervention becomes necessary. Lessons and cues from the credit card-induced consumer debts should inform how BNPL providers leverage the income band and transaction history.
While regulators will likely prioritise consumer financial safety, the key to minimising risk lies on onboarding the right customer from the outset.
In the medium to long term, the growth story of the BNPL industry in Africa remains strong and is poised for continued growth. Increased partnerships and service expansions will enhance accessibility and the sector is expected to expand beyond traditional retail into new industries.
