The buy now, pay later sector once again makes a splash as Australian buy now, pay later (BNPL) firm Zip acquires South Africa-based BNPL company Payflex for an undisclosed amount.
In the past months, the buy now, pay later services, which allow customers to divide payments for purchases into instalments, have become popular, as many people have turned to online shopping. According to analysts, the Buy Now, Pay Later industry experienced a 215 percent year-over-year growth in the first two months of 2021, with the sector’s staggering growth leading to increased competition. Players in the buy now, pay later sector include major companies such as Apple, Square, PayPal, Afterpay, Klarna, Affirm, and Visa, all of who continue to develop new means to edge over competition in the booming sector.
The buy now, pay later sector continues to explode all over the globe, but especially in key markets- Australia, the United Kingdom, and the U.S. The U.S. market alone is so big that the number of BNPL service users is expected to hit 45 million by the end of the year, representing an 81 percent growth from last year.
The African continent remains largely untapped by global buy now, pay later players, and Zip’s acquisition of Payflex clearly shows that it is taking advantage of the growth potential and the limited presence of major BNPL players in Africa. Payflex, established in 2017, claims to be the first and largest BNPL player in South Africa with more than 1,000 merchants and 135,000 customers. Before fully acquiring Payflex, Zip had a 25% stake when it invested in the South African BNPL service six months ago.
Zip once again, expands into a new market, not directly, but through acquisition. In May, Zip acquired United Arab Emirates-based BNPL firm Spotii, Czech Republic-based provider Twisto. Last year it acquired Quadpay which it used to penetrate the US market.
With the acquisition of Payflex, pockets of unbanked and underbanked communities in South Africa and other African countries could benefit from point of sale (POS) financing like the buy now, pay later service since these offerings also act as alternative credit solutions.
For Zip, the acquisition of Payflex will mean a boost in its overall volumes. This fiscal year, June 2021, a period when most of its acquisitions have occurred, Zip hit $5.8 billion in total transaction volume, a 176 percent increase year-over-year. The company currently serves 51,000 merchants and 7.3 million customers across 12 markets.
Zip’s acquisition of Payflex might also be a catalyst for further expansion in other African countries like Egypt and Nigeria, which has one of the largest economies on the continent. If Zip expands to these regions, it will face competition from local players like Carbon, Shahry, M-Kopa, CredPal, and CDCare, which are already gaining momentum. Reportedly, African e-commerce giant Jumia is also working to improve its buy now, pay later service which it started a year ago but discontinued because of its poor reception.
For Payflex, the acquisition allows it to take its presence outside of South Africa since Zip has the capital and resources to bring it into other countries.