A new way to shop: buy now, pay later

A new way to shop: buy now, pay later has become increasingly popular over lockdown after its launch in 2019 as people had to juggle their finances during the pandemic. This interest-free way to shop enables consumers to get their goods immediately and get extra time to pay for them.

Buy now, pay later is also not similar to lay-by, as consumers do not have to wait until the last instalment is paid before they get the goods. Market research shows that adoption of buy now, pay later increased by almost 31% in the country during 2020. In addition, 73% of consumers are looking for financing early on when they want to buy something.

This way of paying for goods is expected to grow by 66.9% per year to reach US$294.1 million (currently around R4.4 billion) by the end of this year. Online shops are also benefitting, with many seeing higher average order values, larger purchases and significant revenue growth when they make it possible for consumers to pay this way.

All this new shopping activity is expected to help the e-commerce sector grow as more retailers and consumers join.

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This is how buy now, pay later works

The process of buying now and paying later is straightforward. When you want to pay for your goods, all you have to do is tick the box for the provider you want to use. You type in your ID number and card details, wait for the transaction to be approved in a few seconds and pay a small instalment as a deposit.

Providers of the buy now and pay later service will then send you emails to remind you to pay the remaining instalments. Some of them charge a fee for late payments.

Who offers buy now, pay later?

A number of local fintech start-ups now offer this way to pay, such as Payflex, PayJustNow, MoreTyme, Mobicred and LayUp. While Mobicred and LayUp are not strictly buy now, pay later service providers, they are included because they share some similarities.

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The benefits of buy now, pay later for consumers

• You can shop at thousands of stores
• You pay only a portion of the price upfront
• You do not pay interest
• You are informed when your instalments are due
• You can budget for the instalments
• There are no hidden costs
• You only pay a fee sometimes if you miss a scheduled instalment
• It is a convenient, disciplined way to pay for what you buy
• Overdue payment fees are lower than the interest on credit cards
• You do not necessarily need a good credit rating to qualify for smaller purchase
• Transaction approval happens fast.

The benefits of buy now, pay later for merchants

• Merchants do not have to pay setup fees
• Low transaction fees on successful orders
• Merchants can expand their customer base
• This system of paying ensures that more customers return to buy more
• More and faster sales conversions
• Higher average order values
• Consumers buy more and bigger goods, ensuring significantly more revenue
• Merchants are paid in full upfront
• Increased cash flow
• Lower risk of fraud and chargeback.

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What buy now, pay later companies offer

Payflex requires consumers to pay four equal instalments over six weeks, usually every two weeks. The company operates with more than 1,100 online stores and will soon also be available in physical stores. If you pay late, you have to pay R65 per week until it is paid, but not more than R195. Transaction fees are negotiated with each merchant that joins.

PayJustNow requires you to pay three equal instalments over three months and is available in 980 online and more than 1,000 physical stores. You do not pay interest, but if you pay late, you have to pay R125 every time your payment is not processed, up to 25% of the original amount. Merchants’ fees are 5% depending on settlement, what platform your store is hosted on and the estimated transaction volume.

MoreTyme is only available to clients of Tyme Bank. You have to pay 50% upfront and three interest-free payments over two months. It is available at 350 merchants and more are joining. If you pay late, it will cost you R65. The merchant fees are confidential.

Two other companies offer similar services, but are not classified as buy now, pay later stores:

Mobicred is a 100% revolving credit facility that lets you pay a minimum of 10% of the outstanding balance. Here you pay interest of 17.5% to buy at more than 3,000 stores, but you are not charged for late payments. Merchant commission starts at 3,5% and bigger stores pay less than that.

LayUp is a digital lay-by company and not a buy now, pay later company. You have two to 24 months to pay and you pay no interest at the more than 200 stores using LayUp. This company also do not charge late payment fees and merchant fees are 5%, excluding VAT.