Zip, an Australian buy-now, pay-later (BNPL), company acquired Payflex, a South African BNPL player, for an undisclosed sum.
This news highlights once more the hype surrounding BNPL services, and the pursuit of global dominance among the top players.
We have featured BNPL services such as Affirm, Klarna, Afterpay and Klarna this year. Tech and payments giants Apple and PayPal have also joined the fray, funnelling cash to their respective BNPL initiatives (for example, Square bought Afterpay).
Australia, the U.K., and the U.S. are the key markets for BNPL service. The U.S. market has such a large user base that it is expected to reach 45 million users by the end of this year, which is an 81% increase over last year. BNPL's popularity in the West is despite its global focus. However, BNPL is exploding across other markets due to a collaborative effort of local and international players.
In the Middle East, for example, Tamara and tabby have raised millions of dollars in equity and debt financing to provide BNPL services. Checkout is also a major shareholder in Tamara. Afterpay is one of the PostPay shareholders. Zip purchased Spotii for $26 Million after investing in it in December 2020.
Zip's acquisition of Spotii was not the only one in the past year. To expand its presence in both countries, the Australian company bought U.S.-based QuadPay as well as Twisto (a BNPL service) in the Czech Republic.
Payflex is the latest addition. Established in 2017, the company claims to be South Africa's first and largest BNPL provider with over 1,000 merchants and 135,000 customers. Zip owned a 25% stake in Payflex six months before it fully acquired the company.
For several reasons, Zips entry into Africa is crucial. The continent is an untapped market with enormous growth potential.
Although credit appetite in Africa is still in its infancy relative to Western markets it is rapidly growing. People are now able to borrow money to pay outrageous interest rates, while lenders report low NPL ratios. Imagine what happens when these consumers have access to low-interest or even zero-interest financing options offered by BNPL players such as Zip: Adoption rates will skyrocket.
Zweiten, the lack of infrastructure and BNPL innovations that Zip can implement because it has a large monetary base is a problem.
Zip has a unique advantage because there are no credit cards or data in Africa. Zip can gather additional data, build creditworthiness and provide credit to customers in South Africa, and other markets that it plans on expanding into with large, digitally-savvy, underbanked populations.
Nigeria and Egypt are two of these markets. Zip will have to compete with local players such as Carbon, Shahry and CredPal, who are already pulling their weight. Jumia, an African e-commerce company, is also rumored be revamping its BNPL services. It was established one year ago but lost traction.
However, Africa does not yet have a market leader because most of these products are still in development. Zip, on the other hand has been very aggressive in expanding into other markets as shown by some of its numbers.
Zip currently serves over 51,000 merchants in 12 countries and 7.3 millions customers. Zip reached $5.8 Billion in total transactions volume during its fiscal year (June 2021), which is when most of its acquisitions took place. This was an increase of 176% year over year (YoY).
Although Zip numbers are impressive, we have learned from the BNPL industry that it isn't a winner-takes all market. Zip will make significant progress and crack the market. Expect more global BNPL players. Local players will also be encouraged to improve their game, as global players have more cash to burn if the move to Africa is successful. This is a win-win situation for everyone.