Companies Benefiting from Buy Now, Pay Later: South Africa & Australia

Ever heard of consumers buying something and paying it off over time? No, it's not lay-by; it's buy now, pay later! Whether it is groceries, clothes, tech, or any other needs and wants, the fintech space is evolving, making financing easier and more accessible.

Buy Now, Pay Later (BNPL) is a popular point-of-sale financing solution, which has grown in popularity among younger generations. It emerged in the early 2010s to address the high fees and complexity associated with credit cards. The financial impact of the COVID-19 pandemic led to a decline in credit card usage, boosting BNPL's popularity. The U.S. BNPL market, valued at a few billion dollars in 2019, is projected to grow by 1,200 percent by 2024, offering retailers and investors a significant opportunity.

Targeting Millennials and Generation Z, BNPL usage among these groups has surged, with a Forbes study noting a 600% growth in Gen Z usage since 2019. BNPL allows shoppers to pay in full after 30 days or in smaller instalments with no extra fees if paid on time. Merchants pay a commission and fixed fee per transaction, making BNPL an attractive, affordable alternative to credit cards.

The BNPL market, valued at USD 378.3 billion in 2023, is expected to grow at over 40% CAGR (compound annual growth rate) from 2024 to 2032. According to Global Market Insights,this growth is driven by consumer demand for flexible payment options. BNPL providers expanded marketing in March 2024, with nearly 45 million Millennials projected to use mobile payments this year. 

Related stocks 

Zip Co 

Zip Co, whose shares have surged by over 300% in the past 12 months, is among the stocks reaping the benefits of BNPL demand. After peaking at over $12 in early 2021, Zip faced significant challenges, falling to 26 cents by October 2023. However, it has since rebounded, experiencing over a 300% increase in value over the past year and joining the S&P/ASX 200 in July, signalling renewed confidence in the BNPL sector. In Q4 2024, Zip reported a transaction volume of $2.6 billion, up 19% from the previous year, and revenue of $223.6 million, reflecting a 22.1% increase. Key metrics included 19.7 million transactions, net bad debts at 1.4% of TTV, 6 million active customers, and 79.3k merchants on its platforms. The company also reduced corporate debt by $130 million and refinanced $600 million in receivables. The CEO stated, “The US continued its outstanding performance, achieving TTV growth of 42.6% and revenue growth of 46.8%, and in ANZ, the yield on receivables increased to 18.4%.”

HomeChoice International

HomeChoice International’s fintech segment, Weaver, increased operating profit for the year ending December 31, 2023, despite a decline in retail sales. Weaver accounted for 92% of the group's operating profit, with revenue up 31% to R1.9 billion and profit before tax rising 27% to R426 million. Its customer base grew 72% to 1.6 million. Weaver offers personal lending, insurance, and payment solutions, including PayJustNow (a BNPL platform), which has doubled its customer base to 1.3 million and has over 2,500 merchant partners. The group tightened credit risk criteria, with Weaver Fintech's debtor costs up 28%, below the 32% revenue growth. Stricter credit limits and better customer quality reduced retail debtor costs by 30%. Later this month, HomeChoice will release its interim results, where it expects earnings to increase by around 45%.

In addition, BNPL can be likened to using shares as collateral, where individuals borrow funds using their stock holdings as security. Although this has existed for some time, it's only recently through EasyEquities that retail investors (more than 2 million) can also use the Top 100 JSE-listed companies and selected ETFs as collateral, offering an alternative way to access credit. Read more about EasyCredit here.

Both the offering of BNPL and using shares as collateral methods enable immediate access to desired resources while deferring full payment.

Conclusion

When it comes to companies associated with BNPL services, investors should consider several key factors:

• The regulatory environment should be assessed, as increased scrutiny and potential regulations could impact profitability. Understanding how different regions regulate BNPL services is crucial, as compliance costs can vary significantly.
• The company's customer base and growth potential should be evaluated, focusing on Millennials and Generation Z, who are the primary users of BNPL services. Tracking user adoption rates could provide insights into long-term growth prospects.

Additionally, examine the competitive landscape, including partnerships with major retailers and the presence of strong competitors. Companies with robust retail partnerships are likely to have a competitive edge. Finally, consider the company's financial health and revenue models, paying close attention to how they manage risks such as defaults and payment delinquencies. Analysing financial statements for indicators of solid risk management practices can reveal the sustainability of their business model. By focusing on these factors, investors could make more informed decisions in the rapidly evolving BNPL market.