Businesses, governments and development institutions all over Africa are keen on financial inclusion, determined to help more people access formal financial services. However, while there have been improvements, organised consumer credit on the continent is still largely limited.
Thankfully, Buy Now Pay Later (BNPL) presents an opportunity to fill this gap. It is gaining popularity globally and is projected to reach $3.98 trillion by 2030. Startups on the continent are a part of this global movement, increasing the credit opportunities offered to African consumers. As a result, the credit aspect of financial inclusion is poised to see significant growth as BNPL develops.
Fehintolu Olaogun, the CEO and co-founder of CredPal, a fast-growing consumer credit startup based in Lagos, answered some crucial questions about the impact of BNPL on financial inclusion in Africa.
- Please share some background on CredPal’s products and how well received they are in the market?
CredPal was established by me and my longtime friend, Olorunfemi Jegede, in 2018. An idea that started in a one-room office has managed to be one of the fastest-growing Buy now, pay later startups in Africa.
We’re building credit solutions to transform buying experience and drive financial inclusion for the African consumer. The business delivers a flexible payment option that allows African consumers to buy from merchants online and in-store while spreading payment over time.
Our Buy now, pay later product caters to users who want to make purchases. In my opinion, it is more empowering to help consumers purchase items that supplement or improve their lifestyle rather than offer them cash loans which really may not even be used for the purpose that it was borrowed.
We’ve had users make their first credit purchase through CredPal. This is a big deal; we’re letting people know that financial buoyancy isn’t necessarily a determinant of credit access.
There’s also our partnership with over 13,000 merchants across various industries. As a result, CredPal users enjoy more flexible purchase experiences, and these merchants are also empowered with the right tools to reach more customers achieve increased sales and business growth.
- Providing credit is an important part of driving financial inclusion, how would you say CredPal’s products contribute to financial inclusion in Africa?
Different barriers limit consumers, and three of them that we’re combatting at CredPal are; access, depth, and ease.
With access and ease, the challenges vary from poor physical proximity to lending institutions to consumers with insufficient credit profiles. But we’ve been able to level the playing field through our mobile apps, merchant partnerships with CredPal agents in stores, and referral programs.
When my co-founder and I started CredPal, it was on the premise that we wanted to mainstream consumer credit in Africa because of how cash-driven our economy was and improve the consumer spending lifestyle, which was more of pay as you earn.
Our flagship product, Buy Now, Pay Later, has transformed the lifestyle of over half of our users. The ability to extend your finances beyond what you earn to purchase items that’ll improve your life is something that excites us. We’ve received many testimonials from our users that prove how this contributes to credit inclusion in Africa.
With the hundreds of thousands of users we have, we’ve provided access to credit and extended it to first-time credit users, which has helped them build a credit profile to access tremendous credit opportunities such as mortgages or car loans. Generally, we have been able to increase African consumers’ purchasing power, which has translated to a better standard of living.
- What are the biggest challenges you have had to tackle? Would you say these challenges are unique to Africa?
Significant challenges are the lack of sufficient documentation and consumers’ unstructured credit records, which should help guide how we make risk-based and lending decisions. Another is that many consumers still do not have credit profiles because they assume access to credit is only for the rich.
At CredPal, we ensure that we have a well-optimized credit risk management structure in place and have partnered with other data management companies, all of which are combined with the information we get from credit bureaus. I also believe that if lenders endeavour to make frequent and updated reports to credit bureaus, it’ll further help lenders manage and assess risks when providing credit.
Credit education: The credit culture in Africa is still very much at its developing stage. Yes, many consumers are familiar with loans. Yet, with that, the understanding to use credit responsibly and pay back timely is still a significant challenge that lenders in Africa are tackling. At CredPal, we do our best to infuse education into the product. Right from the onset, when consumers choose to use our product, we educate them from onboarding and continually do so through various communication channels.
Now, I wouldn’t say these challenges are unique to Africa, with developing economies similar to elsewhere in the world. I’d rather say that what is remarkable is how we’re tackling these challenges, adapting to the changes that come with technology, and bridging these gaps to grow a consumer credit ecosystem.
- How well do the credit systems and infrastructure available support your business?
In the past ten years, countries in the different African regions have set up private credit bureaus to make it easier to disseminate and access consumer information, with three private ones in Nigeria, for example. So, it’s only suitable to state that the existing infrastructure has helped us get the necessary information to offer credit to low-risk users and help good borrowers gain access to financial opportunities. But there are still gaps to fill in the growth of credit infrastructure, especially with credit reporting and documentation.
- How would you describe the average African consumer’s attitude to credit?
Cash loans are prevalent in Africa, but when it comes to other forms of consumer credit, there’s still a growing acceptance that puts the onus on credit providers to educate users. Looking at CredPal, for example, we tasked ourselves with educating our users – a lot of them were first-time credit users on Buy Now, Pay Later, and credit cards. So far, we’re pleasantly surprised with how well our users are embracing Buy Now, Pay Later. I know we’ll hit that stage where the average African consumer can see how BNPL offers a better opportunity for a lifestyle change than cash loans.
The averse attitude to credit also stems from not wanting to be in “debt”. But we have the early adopters who are eager to try out new financial products and looking for better ways of easing financial burdens, so these groups of consumers help make the work worth it, and you can always rely on them when it comes to word of mouth. As a result, now more Africans are adopting credit to improve lifestyles and even grow businesses.
- In ensuring that more Africans get access to consumer credit, what areas of innovation does Africa need to double down on?
So much work still needs to be done with structured credit records and better infrastructure for identity documentation.
We also need more credit-inclusive products for low-income earners and consumers in rural areas. For example, imagine offering Buy Now, Pay Later to a smallholder farmer in a rural area and creating low-risk repayment structures to discourage default.
With the continuous emergence of technology innovation in these areas and several others, I believe that with time, we’ll have a more developed credit market and an improved credit culture which will automatically translate to higher credit penetration and easier access to credit.
- What does the future of consumer credit look like on the African continent?
As much as debit cards and cash are still prevalent here, there’s been an increase in lending companies offering different credit products. This tells me that the credit penetration is accelerating, which can only be because the demand exists.
We’ve been seeing a new wave of consumer credit. For example, with BNPL, when Olorunfemi and I started in 2018, it was tough getting customers to believe that they didn’t have to pay in full for an item before they could take it home. I’d say the shift started during the pandemic when our economies, just like others, suffered a hit, and people were more receptive to the idea – using better financing options to maintain or upscale their lifestyles.
From the trends we’ve observed with our more recent users, I’d say that younger African consumers are better educated about credit use and embrace all the forward-thinking ways of accessing credit. This means that in the nearest future, Africa will be a continent where people understand the intrinsic value of credit to their lifestyle, the economic value, and most importantly, the other financial opportunities that it opens up for them.
Leveraging technology and merchant partnerships even better – I imagine that soon we’ll be able to completely use just purchasing power and shopping habits to drive consumer credit without going through all the stages we currently do to be able to offer credit to a consumer.
About Fehintolu Olaogun, CEO & Co-founder, CredPal
Fehintolu is a serial entrepreneur with over 13 years of experience in results-driven leadership.
Fehintolu has a history of designing and creating best-in-class business solutions. Before co-founding CredPal in 2018, he was co-founder and CEO of Exolve Technologies, a first-rate technology corporation that provides enterprise solutions to governments and establishments across Africa. He also founded Tutor NG, an online system that provided tools and resources for engaging and teaching learners anytime and anywhere.
Fehintolu holds a master’s degree in Information Technology from the University of Lagos and a bachelor’s degree in Electronics/Electrical Engineering from Obafemi Awolowo University.