Dangers Lurk As South Africans Rush To BNPL Platforms In Festive Season
As Black Friday and Cyber Monday saw a surge in the use of ‘Buy Now, Pay Later’ (BNPL) options for payments, it’s anticipated that more South Africans will adopt this method for their holiday shopping. The use of BNPL is projected to triple in December 2023 compared to the previous year, asserts Float, a card-linked instalment platform.
BNPL allows shoppers to split payments into equal instalments rather than paying the full amount upfront. While this can be convenient, it’s important to note that multiple BNPL providers might tempt consumers, potentially leading to late payment penalties and financial strain.
Float’s CEO, Alex Forsyth-Thompson, highlights the responsible use of BNPL as beneficial. However, the hidden nature of these loans outside shoppers’ credit records can result in accumulating multiple BNPL purchases, possibly causing over-indebtedness. Late fees and interest charges can escalate, causing a cycle of debt that extends beyond the holiday season.
“When used responsibly BNPL can be a useful tool. However, because these loans are generally not reflected in shoppers’ credit records and remain unseen by other BNPL providers, shoppers can accumulate multiple BNPL purchases and become over-indebted in a short time. Late fees and potential interest charges can also accumulate, creating a snowball effect of debt. What starts as a smart decision to spread out payments can quickly evolve into a financial burden that lasts well beyond the holiday season,” says Forsyth-Thompson.
Globally, BNPL faces criticism due to concerns about increasing living costs and high-interest rates. Critics argue that these services offer new credit without the usual checks for affordability, potentially encouraging excessive spending. While most BNPL services are interest-free, penalties for late payments can be as high as 25 percent of the purchase within a few weeks. The attractiveness of BNPL lies in categories like fashion and accessories, appealing especially to young shoppers with limited credit experience.
Float, a two-year-old startup is attempting to distinguish itself with a card-based model billed to be a more responsible approach. It enables credit cardholders to divide purchases into interest-free, flexible monthly instalments, extending payment periods up to 24 months. Importantly, this model doesn’t provide new credit, preventing shoppers from overextending themselves financially.
Forsyth-Thompson explains that Float operates by reducing available credit by the full purchase amount, serving as a safety net against overspending. It simplifies purchases into manageable, interest-free monthly repayments on the credit card.
This approach allows individuals to align payments with their salary cycles. For instance, a ZAR 10 K purchase divided into six equal instalments means around ZAR 1.66 K per month over six months.
Since Float doesn’t extend new credit, there’s no registration or credit check for consumers. Notably, it doesn’t impose late fees or penalties, distinguishing it from other BNPL providers.
The top three categories for BNPL purchases through Float in 2023 are electronics (29 percent), furniture and home decor (22 percent), and appliances and gadgets (19 percent). Moreover, Float has witnessed an increased interest in loadshedding solutions, with an average order value of ZAR 24 K.
Since November 2021, Float has built a network of merchants across online and in-store channels including iStore, Samsung, The Pro Shop, CycleLab, Dial-a-Bed, and the startup boasts 400 percent year-on-year growth in that time.
Merchants offering Float payments, the company claims, stand to benefit from higher average order values and access to a customer base of over 5 million pre-approved credit card holders in South Africa. Additionally, Float tailors its services to meet merchant needs, allowing customization of instalment numbers, settlement terms, and available payment channels.
