South Africans are struggling on the back of fuel price increases along with rising food and utility costs. Increasingly, credit cards are being used to pay for expenses, which is a dangerous trend in a country that is already highly indebted.
According to SA’s largest buy now pay later (BNPL) provider, Payflex, this payment method provides short-term relief by offering a convenient interest-free way for consumers to pay off their purchases. BNPL is projected by Worldpay to be the world’s fastest-growing payment method between 2021 and 2025 and is gaining significant traction in South Africa.
Credit cards versus buy now pay later
Paul Behrmann, Payflex CEO, says that BNPL’s interest-free payment model can be a lifeline for smaller purchases, especially if you time your six week payment period carefully to cover two salary cycles. “BNPL allows consumers to replace expensive credit with an interest-free payment plan that promotes responsible spending. Increasingly South Africans are switching to interest-free BNPL from credit cards, which can be expensive and lead to overindebtedness, as only low minimum monthly payments are required.”
Payflex’s BNPL service differs from traditional credit offerings as customers do not pay for the service (zero interest, zero fees) and repayments follow a fixed 6-week repayment schedule that require the full balance to be repaid over the period. This is in stark contrast to credit cards which provide customers with high credit limits that can be spent all at once. Credit cards do also not require the full balance to be repaid – and so encourage long-term debt at high interest charges.
The average purchase value using Payflex is R1,200, making it ideal for smaller, non-essential purchases like fashion items. “New customers are allocated a conservative spend limit based on their risk profile. Each purchase is split into four instalments, and customers who pay their instalments on time are granted a higher spend limit. This is a more responsible model than traditional credit cards which provide a large open line of credit upfront and encourage long term repayments at high interest charges,” said Behrmann.
If a customer misses an instalment payment, Payflex charges a fixed penalty fee and blocks the BNPL facility until all outstanding payments have been paid. This prevents customers in financial difficulty from adding additional debt which they may not be able to repay.
Payflex’s BNPL is available at over 1,800 online merchants but the company’s phenomenal growth has led Payflex to offer its BNPL payment option in physical stores as well.
“The approval process takes seconds and you can make your BNPL purchase immediately using a user-friendly app. Simplicity is the key to short-term financing with no hidden costs,” says Behrmann.
Tips to manage your BNPL account
- Set your own budget and work out what you can comfortably afford to pay off fortnightly for the next 6 weeks.
- Keep track of how many open repayment plans you have active so you don’t accidentally blow your budget.
- Repay your payment plans early if you have some spare money available.
- Take note of frequent payment reminders to avoid late payment fees.
Payflex was recently acquired by global BNPL provider Zip, which has 11.4 million customers and tens of thousands of merchants in 13 countries. “Interestingly, customer default rates in SA are the lowest in Zip globally, putting an end to the idea that South Africans do not honour their financial commitments. Risk-averse consumers are looking for budget-friendly payment options, so while the credit card will continue to be a significant payment method, the alternative payments landscape has emerged as a major contender in digital payments,” says Behrmann.