Buy now, pay later boom raises risk of consumer credit strain

South Africa’s rapid adoption of buy now, pay later (BNPL) products is increasing the risk of consumers becoming overextended as this easy access to short-term credit is not yet regulated, and information is not commonly shared across credit bureaus.

That is the warning from Mauro Villarreal Garza, planning director for digital risk at LexisNexis Risk Solutions.

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Garza told Moneyweb in an interview that BNPL has evolved into a popular form of lending that can improve cash-flow management for consumers, but also allows multiple credit facilities to be taken on simultaneously, with limited visibility of overall affordability.

“Consumers can get many loans at once, and this can result in them taking on more debt than they can realistically repay.”

BNPL is typically accessed through online shopping, where it is integrated into digital checkout processes, making short-term credit available with minimal friction.

Garza acknowledges, though, that it can also be a useful tool for managing cash flow when used responsibly.

Broader appeal

The buy-now-pay-later trend has been building steadily for several years and is now spreading beyond its original base of younger users.

“It started among millennials and Gen Z buyers, but has made inroads into all segments,” Garza says. “For example, financially distressed women are a group using BNPL increasingly.”

Read: Weaver Fintech successfully expands its buy-now-pay-later offerings

His comments come as data points to strong momentum in the local BNPL market.

According to payment gateway Stitch, the sector is projected to grow by 13.6% a year, reaching about R13.6 billion in 2025 and exceeding R16.7 billion within five years.

Stitch’s latest consumer payments report shows that 45% of respondents have already used BNPL for everyday purchases, which shows it is moving from a niche offering to a mainstream payment method.

Higher sales conversion 

BNPL allows shoppers to split purchases into interest-free instalments instead of paying the full amount upfront, while merchants receive the full value of the transaction from the BNPL provider.

Repayment periods typically range from two weeks for smaller purchases to as long as 24 months for higher-value items. Local providers include HappyPay, Payflex, Float, and PayJustNow.

According to Stitch, the appeal for retailers is higher sales conversion.

BNPL uptake is particularly strong among mid- to high-income earners making larger purchases, resulting in higher average basket sizes and lower cart abandonment at checkout.

Although BNPL transactions may be less frequent than other payment methods, their average value is significantly higher, offering a competitive edge to merchants that offer the option.

The trend is not confined to South Africa or emerging markets.

Garza says BNPL has effectively become a “road to access credit” globally, with similar growth patterns evident in countries such as Mexico, Brazil and Poland – and with traditional financial institutions now developing products to compete in the same space.

Read: Private credit fuels a ‘buy now, pay later’ lending boom in Asia

“Everyone is now trying to get a piece of the pie,” he says.

Alternative data sets

To manage risk, BNPL providers rely on alternative data and new technologies rather than traditional scoring alone, Garza notes.

This can be a strength, as it not only provides insight into a consumer’s creditworthiness, but also into affordability measures that conventional models may miss.

“When companies are more open to different technologies and data points, underwriting becomes more robust,” he adds.

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