PayPal recently launched Pay in 4, a short term interest free instalment offering for merchants in the US. Pay in 4 is a payment process that makes it possible for merchants to get paid upfront while customers pay for purchases that cost between $30 and $600 in four installments over a 6-week period with no fees or interest. The online finance service says this product can help merchants drive conversion, revenue and customer loyalty without taking on additional risk or paying any additional fees.

The buy-now-pay-later style of purchasing has grown in the last few years and even more so during this pandemic as online sales have increasingly grown in popularity. Customers are consistently looking for new and creative ways to shop especially with the holiday season fast approaching. Now with PayPal’s entry in this space, comes a fresh spin on the age old process with their Pay in 4 model.

Pay in 4 is different because unlike many other BNPL services, it does not charge interest to the consumer, instead, if a customer is late on payment, they will have to pay a fee up to $10. In the US, companies like Afterpay and Affirm charge retailers around 5% to 30% of each transaction to offer this service. In Nigeria, we have companies offering this service like Zero finance and Spar Nigeria who demand installed payments on the value of credit within 3 months to a year.

Nigerian Consumers May Jump Ship

This no interest offering plus it’s highly profitable payments network could give PayPal significant leverage not just in the US but in many other markets especially in Nigeria.

In 2005, Nigeria was considered the 2nd largest PayPal market in Africa with more than one million active accounts. Meanwhile, Statistica records that in the 2nd quarter of 2020, there were a total of 346 million active PayPal Accounts in the world and 38% of online shoppers in Nigeria made payments with platforms like PayPal in the same time period.

It is certain that the buying behavior of Nigerians constantly evolves but there is one factor that almost always cuts through the average Nigerian buyer- they want a deal!

Not just any deal will suffice for the average Nigerian Buyer, it has to be a good deal. Hence, when and if PayPal rolls out this new payment option in Nigeria, it could attract many more consumers than its competitors, particularly as it relates to the no interest policy.

Buy-Now-Pay-Later: Does it even work in Nigeria?

Simple answer: It does!

However, there are many terms and conditions that may discourage consumers. The typical BNPL service provider within Nigerian limits the service offering to certain locations within the country and also only offers the payment option to salaried consumers, this is in most cases due to the default rate on payments in the country.

The rate at which borrowers default on payment in this model and on bank loans especially during the pandemic has resulted in the Central Bank of Nigeria introducing laws that allow banks have access to all of a customer’s bank accounts and gives them the liberty to make debits overtime until payment is completed.

Most interest free payments seem appealing on the surface but is largely dependent on consumers making payments on time; delay in payments mean penalties rack up fast and puts the defaulting consumer in a great amount of debt in a short period of time- this could be the most viable reason for which many Nigerian are skeptical of the BNPL process, so we find that many consumers need to closely read the fine print for payment plans before making purchase decisions.

In such a manner, Pay in 4’s unique offering will without a doubt thrive in Nigeria and many other countries. A ball park rate on delayed payments after all is way more appealing than an undetermined rate for defaulters.

PayPal taking and managing the credit risk of this offering further proves that the global economy as volatile as is due the pandemic may have started showing resilience as people have in spite the odds managed to keep normalcy alive. 

Why BNPL Works?

  1. It appeals to Younger Consumers.
  2. More people prefer BNPL to Credit Cards.
  3. It increases sales.
  4. Improves User Experience.
  5. More affordable for most consumers.