Zip Acquires Payflex: BNPL Growth in Africa

Zip Expands BNPL Reach with Payflex Acquisition

Australian buy now, pay later (BNPL) provider Zip has recently completed the acquisition of Payflex, a BNPL company based in South Africa, for an undisclosed sum.

Growing Global BNPL Landscape

This development underscores the continuing interest in BNPL services and the competitive drive for worldwide market leadership.

Throughout the year, we’ve reported on BNPL offerings from companies such as Afterpay, Klarna, and Affirm.

Furthermore, major technology and payment companies including Apple, Square, PayPal, and Visa have actively participated, substantially investing in their own BNPL initiatives – notably, Square’s acquisition of Afterpay.

Key Markets and Emerging Growth

Australia, the United Kingdom, and the United States represent crucial markets for BNPL services.

The U.S. market is particularly substantial, with projections indicating 45 million BNPL users by the end of the year, a growth rate of 81% compared to the previous year.

Despite a primary focus on Western nations, BNPL is experiencing rapid expansion in other regions, fueled by both local and international companies.

Expansion in the Middle East and Africa

In the Middle East, firms like tabby and Tamara have secured significant funding through debt and equity to facilitate BNPL services.

Checkout holds a substantial stake in Tamara, while Afterpay has an investment in PostPay.

Zip previously acquired Spotii for $26 million, following an initial investment in December 2020.

Zip’s Strategic Acquisitions

Spotii is not the only acquisition Zip has undertaken recently.

The Australian company also purchased U.S.-based QuadPay and Twisto, a BNPL service operating in the Czech Republic, to broaden its presence in those respective regions.

Payflex represents the latest addition to this expansion strategy.

Established in 2017, Payflex claims to be the first and largest BNPL provider in South Africa, serving over 1,000 merchants and 135,000 customers.

Prior to the full acquisition, Zip held a 25% ownership stake in Payflex, having invested in the South African BNPL service six months prior.

Significance of Entry into Africa

Zip’s entrance into the African market is noteworthy for several key reasons.

Firstly, the continent presents a largely unexplored market with considerable potential for growth.

Credit utilization across the continent is still developing compared to Western markets, but it is increasing at a rapid pace.

Consumers often resort to loans with exorbitant interest rates, while lenders report low rates of non-performing loans.

The introduction of low or no-interest financing options, such as those offered by BNPL providers like Zip, is expected to drive substantial adoption.

Infrastructure and Innovation Gaps

Secondly, there is a deficiency in infrastructure and BNPL innovation, which companies like Zip, with substantial financial resources, are well-positioned to address.

Given the limited availability of credit cards and data on the continent, Zip can leverage its technology to gain a competitive edge, collect alternative data, and establish creditworthiness for customers in South Africa and other target markets with significant underbanked and digitally connected populations.

Future Expansion and Competition

Egypt and Nigeria are two potential markets for expansion.

If Zip expands into these regions, it will encounter competition from local players such as Carbon, Shahry, M-Kopa, CredPal, and CDCare.

Jumia, a leading African e-commerce platform, is also reportedly revitalizing its BNPL service, which was previously discontinued after limited success.

However, Africa currently lacks a dominant market leader in the BNPL space, as most offerings have yet to achieve widespread adoption.

Zip’s Growth and Market Dynamics

Zip’s aggressive expansion strategy is reflected in its recent performance.

The company currently supports 51,000 merchants and 7.3 million customers across 12 markets.

In its fiscal year ending June 2021, a period encompassing most of its acquisitions, Zip recorded a total transaction volume of $5.8 billion, representing a year-over-year increase of 176%.

While Zip’s numbers are impressive, the BNPL market is not expected to be a “winner-takes-all” scenario.

Should Zip achieve significant success in the African market, further competition from global BNPL players is anticipated.

Local players will also be incentivized to enhance their offerings, creating a mutually beneficial environment for the market as a whole.