The combination of recent events in South Africa − including civil unrest, record unemployment levels and the COVID-19 pandemic − have created the perfect storm for alternative payment solutions which offer flexibility, convenience and transparency.
The health crisis has forced South Africans to accept new financial realities. With soaring unemployment levels and economic instability, a vast number of South Africans are either stretching one salary to replace another that was lost, or finding themselves drowning in debt and struggling to pay their bills.
These economic conditions are energising interest in alternative payment methods like buy now pay later (BNPL), which enable consumers to increase their cash flow and budget more easily by spreading payments across six weeks.
Three waves of the coronavirus have compounded consumer demand for cashless transactions, with shoppers choosing digital options in order to reduce touch points when it comes to in-store shopping.
These surges in the pandemic over the past 18 months have battered South Africa’s already fragile economy, amid record unemployment rates of 32.6% and rising household debt.
At the same time, TransUnion’s Consumer Pulse Study found 62% of consumers are being impacted financially as a result of the pandemic, and 87% of those impacted are concerned about paying their bills.
This has been compounded by the worst rioting the country has seen since the collapse of apartheid in 1994. And in the aftermath of the looting and destruction, which is estimated to have cost the South African economy R50 billion, the employment crisis and economic uncertainty are expected to deepen further. This is in addition to the 1.4 million jobs estimated to have already been lost since the start of the pandemic, according to Nedbank.
And while the recent lifting of lockdown level four restrictions by president Cyril Ramaphosa is expected to give the economy a much-needed shot in the arm, significant uncertainty prevails.
As such, South African consumers are looking to stretch their rands further, as well as avoid taking on credit card debt, making alternative payment solutions like BNPL an important solution.
The dark horse of the pandemic
Virtually unknown to the vast majority of customers as recently as five years ago, the BNPL sector has grown exponentially, and was turbocharged by the outbreak of the pandemic. One thing the pandemic made clear is cash is no longer king as more consumers forgo physical money in favour of digital payments.
According to Juniper Research, BNPL spending will reach $995 billion in 2026, up from $266 billion in 2021. The research also found that the global number of BNPL users will exceed 1.5 billion in 2026, more than four times the 340 million users expected in 2021.
The emergence of the BNPL sector is an example of how the consumer payments landscape is changing, facilitated by rapidly-evolving technology.
Similarly, the Global Payments Report by Worldpay from FIS found that BNPL is expected to account for 13.6% of global e-commerce spend by 2024. Similarly, a recent PYMNTS Buy Now, Pay Later Tracker found 48% of BNPL users will not buy from a merchant if they don’t offer BNPL.
On a local scale, the value of BNPL payment adoption in South Africa is expected to increase from $176.2 million in 2020 to reach $ 868.6 million by 2028.
A next-gen consumer
Even before COVID-19, a transition to digital payments and e-commerce was under way. But, the pandemic accelerated nascent trends, leapfrogging old processes and systems, and creating a digitally-savvy, next-gen consumer with more choices and more channels to pursue than ever before.
Last year, e-commerce penetration grew by 10 years in a 90-day period. While the value of the global digital payments market is projected to double to $11.29 trillion by 2026.
At the same time, PwC’s Global Consumer Insights Pulse Survey found that over 50% of global consumers have used digital devices more frequently than they had six months earlier, when they had taken part in a prior PwC survey. The report also found the use of smartphones for shopping has more than doubled since 2018.
The emergence of the BNPL sector is an example of how the consumer payments landscape is changing, facilitated by rapidly-evolving technology.
Consumers have flocked online since the pandemic hit, as new audiences embraced e-commerce and new technologies. And it’s no longer just millennials and Gen-Z who are experimenting with new shopping experiences and payments, but consumers of all ages. The share of consumers using two or more digital payment methods jumped from 45% in 2019 to 58% in 2020.
This new breed of consumer is increasingly demanding instant gratification, transparency and flexibility, which is why they are increasingly moving away from traditional payment methods and gravitating towards alternative payment methods.
No going back
Retail and digital payments are constantly changing, and we're not going back to anything like we've ever known before. More importantly, we are dealing with a permanently changed consumer who won’t just accept the status quo when it comes to payments.
Rather, they are demanding better financial tools that empower them to spend and pay how they want, when they want, without risks or interest.
BNPL has emerged as an important tool for both consumers and retailers in our post-pandemic realities and continues to turn the payments paradigm onto its head.
And while the growth of alternative payment methods like BNPL has been significant in recent months, we are only in the nascent stages of BNPL adoption in the South African market.
Nonetheless, it is clear that consumers want to see more BNPL options going forward, as household incomes look set to remain under pressure for the foreseeable future. No matter how you look at it, it is clear that digital payments have become part-and-parcel of the new normal.
While we can’t say exactly what’s next for BNPL, it is clear it is not just a pandemic-driven trend but is here to stay.
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