With digital commerce and eCommerce marketplaces making it easier for people to purchase products and services online, Buy Now, Pay Later services provide an additional and more convenient way for consumers to finance their purchases online.
Although the Buy Now, Pay Later model is a great way for businesses to improve the customers’ payment experience at the point of sale, it comes with significant limitations. In this article, we’ll be delving into how BNPL services operate, the challenges they encounter with credit-decisioning, and how Mono can help.
What is a Buy Now Pay Later (BNPL) service?
Buy Now, Pay Later (BNPL) services allow you to access digital credit, so you can buy products online, pay one-third of the cost upfront, receive your item, and then make subsequent payments in instalments.
When the purchase is completed, the merchant receives the total payment from the buy now, pay later provider without managing any of the financing. On the other hand, the BNPL provider handles the process of assessing the customers’ credit eligibility and collecting the instalments when they are due.
On a global scale, BNPL players like Afterpay, Affirm, and Klarna are some of the biggest pioneers of the industry. Its dominance in the market could largely be due to consumers’ over-reliance on online shopping during the Covid-19 pandemic and the convenience offered to shoppers to make purchases on credit at the point of sale and split payments into instalments, with little or no interest rates attached.
The adoption of Buy Now, Pay Later services has grown rapidly across the world and it is projected that global consumers will spend $680 billion using online POS finance or BNPL over eCommerce channels in 2025. This appeal for BNPL as an alternative payment option for consumers could explain why more businesses are dipping into this business model; Apple introduced Apple Pay Later or Mastercard launching Mastercard Installments, a BNPL solution that other businesses can securely integrate into their product.
How Buy Now Pay Later (BNPL) services are evolving in Africa
With services like Carbon Zero, CDcare, Credpal, Zilla, or Klump, Africa isn’t left behind in the Buy Now, Pay Later trend. However, the BNPL model isn’t particularly new in Africa. In Nigeria, for example, the hire purchase or instalment payment plan has always existed. Sellers have often offered consumers ownership of large purchases like electronic appliances, cars, tricycles, motorbikes, or laptops for a down payment, and then spread later payments over a couple of months, as agreed upon by both the buyer and seller.
Unfortunately, the hire purchase model comes with its pitfalls. It is often limited to large retail purchases and dependent on a close relationship with the seller or the provision of a guarantor to determine a buyer’s capacity to repay the cost of items purchased. This isn’t ideal or easily accessible for consumers who want to make quick, smaller purchases.
This consumer credit gap is now filled by fintech products like Klump that make digital credit more accessible to consumers anywhere in Nigeria. Klump’s BNPL service lets you buy items online and pay later in instalments over a flexible payment period.
For example, if Susan, a seamstress, wants to buy a new sewing machine for her business but doesn’t have the funds to make the payments in full, she can use Klump’s BNPL option to finance this purchase. During checkout, she will be required to make a 25% upfront payment and receive her item immediately, while the 75% balance is made in installments over three months with a small interest fee. Klump then pays the merchant for the total cost of the purchase and collects the instalments from Susan over time.
In other African markets like Kenya, the BNPL service is also ubiquitous. The Gross BNPL merchandise value in Kenya is expected to grow from $51.6 million in 2020 to $589.5 million in 2028. One of the key BNPL players contributing to this growth is Lipa Later, a Kenyan-founded startup that offers shoppers access to consumer credit to pay for items in monthly instalments. Its robust merchant network also plays a significant role in the adoption of the BNPL option among consumers and online shoppers in Kenya, and to serve this demographic even more, Lipa Later built a BNPL API that merchants can integrate into their e-commerce platforms to sell products directly to customers over flexible monthly instalments.
The BNPL model provides customers with flexibility and more control over how they shop and pay for items online. For businesses, this means increased sales, lower cart abandonment rates, and new customers. Despite these advantages for both parties, BNPL providers still encounter peculiar challenges in Africa that make it harder for them to operate.
On the business side of things: problems impacting the BNPL model in Africa
With the average household income in Africa at about $762 and a soaring inflation rate, offering consumers the choice to shop online for goods like clothes, accessories, or household appliances and pay for these items in small instalments is a huge perk. While this opens up opportunities for the consumer to make e-commerce purchases they ordinarily wouldn’t be able to pay for outrightly, BNPL providers have to pay the total value of any purchase to the merchant and then take on the associated risks of identity fraud, and repayments or non-performing loans.
Lack of access to customers’ financial data
Typically, before a credit check is conducted at the point of sale, Buy Now, Pay Later services need to access customers’ financial history. To do this, they require customers to manually submit their bank statements, however, sometimes, the information submitted by the customer may be incomplete, inaccurate, and difficult to validate if it belongs to them. These factors oftentimes make BNPL services offer credit without complete financial information, increasing their lending risks.
High credit default rates
Another challenge that Buy Now Pay Later services face is the high default rates from consumers. Unlike markets like Europe or North America where consumer credit information is more readily available, BNPL providers in Africa can’t access customers’ financial history easily. So, they have to rely on user-reported data for their credit-decisioning. This means that when they give out credit without accurate financial information about the customer, the chances of a default are higher.
Additionally, in cases where customers don’t have an active bank account or a formal credit history, BNPL providers often face the challenge of relying on thin financial profiles to make their decisions. As a result, they may even risk excluding traditionally underbanked individuals from benefiting from their services in order to mitigate potential risks.
How Buy Now Pay Later businesses can build more reliable credit risk assessment processes with Mono
With BNPL providers unable to access the wealth of data they need to power their credit decisions, Open Banking technology makes it possible for them to conveniently access these data points to innovate for their consumers and reduce business risks.
To take advantage of Open Banking technology and move away from traditional credit checks, let’s look at how you can use Mono Open Banking-powered infrastructure to build a better risk assessment process for your Buy Now, Pay Later service.
1. User identity verification with Mono Connect and Mono Lookup
A better way of assessing borrowers’ creditworthiness starts with verifying their identity and account information. This is usually the first step in your risk assessment process because knowing who you are offering credit to, helps to reduce the risk of fraud for your business.
So how best can you accurately verify a potential borrower’s identity?
With Open Banking technology, third-party providers like Mono can build connections to banks and other financial institutions through APIs, to allow financial service providers like Buy Now Pay Later businesses securely access customers’ verified identity data with their consent, for KYC purposes.
This identity information is shared directly from the banks, without requiring the user to manually input these details, and allows the business to perform identity checks easily.
To see this in action, you can watch the Klump team share how they use Mono to verify user identity and power their fraud detection engine.
Beyond verifying user identity, you can leverage Open Banking services like the Mono BVN Lookup API to glean more information on an account holder. For example, you can retrieve data on if a potential borrower’s BVN has been whitelisted or not. This gives you insights into the borrowing habits of the customer, or if they are capable of fulfilling their installments. Also, this makes your risk assessment process more efficient and reliable, and boosts your acceptance and repayment rates.
2. Access to transaction data with Mono Transactions API, Statement Pages, and Mono Data Sync
With secure access to customers’ transactions and income data through Open Banking, it becomes easier to get insights into a customer’s cash flow and finance patterns. For one, you are able to access their verified financial statements directly from the bank or financial institution.
Two, using Mono’s Open Banking products, Statement Pages and the Transaction API, helps you to collect users’ bank statements (up to 12 months) without writing code and access historical transactions with code, respectively, preventing you from relying on customers’ self-reported financial history for credit assessment. With the credit assessment process better streamlined with either Mono’s Transaction API or Statement Pages, you are able to make faster and more data-informed decisions on your customers’ applications.
In cases where you have a returning customer, and need to review their credit limit using their up-to-date transaction history, Mono Data Sync, enables you to access their up-to-date transactions and reassess their credit limit without necessarily requiring the customer to re-submit their recent bank statements. This improves the experience for your user during the application process and helps you make smarter credit-decisioning with the most recent information in the customer’s financial profile.
3. Insight into customers’ income with Mono Income endpoint
Buy Now Pay Later services also rely on customers’ income insights as a means to determine their capacity to repay.
With the Mono income endpoint, you can easily retrieve the verified income data on a customer’s account. This returns information such as the average income, estimated monthly income, estimated yearly income, and the number of income sources a customer has, with their explicit consent.
For example, instead of requesting customers’ payslips or self-reported income amounts at the point of sale, with the Mono income endpoint, you can enable them to connect their bank account(s) and securely consent to share their income data with you. This fetches their reliable and accurate transactions directly from the bank and immediately analyses their transaction patterns to identify the customer’s recurring and estimated income data. You can then get insights into their cash inflow or outflow, and how their income has changed over time. This helps you to quickly understand your customers’ income and finance patterns at the point of sale, so you are able to accurately measure if they can afford to repay their instalments.
4. Alternative sources of data with the Mono Telco Data endpoint
Customers who do not have traditional bank accounts and only use a few digital financial services typically have thinner financial profiles. They may find it difficult to access credit offered by Buy Now Pay Later services if they are unable to share any their financial data from alternative sources. For the business, this might mean losing out on new customers and driving more sales.
Mono provides alternative transaction data sources through our Telco APIs and digital investment connections.
With our Telco APIs, we have built connections to telco networks across Nigeria so you can securely retrieve users’ mobile network data like their identity details, account information, airtime and internet data transaction history and balances, with their consent. This provides the BNPL service with an alternative and reliable way to understand users’ risk behavior and spending patterns, so they can make data-informed creditworthiness assessments.
Our connections to investment institutions on the Mono Connect widget also enable users to securely link their investment accounts with your business. This connection then allows you to access their investment and assets data with their permission, and retrieve information such as their identity details, investment holding type, investment balance, and investment income\earnings. With this alternative data, you can perform your credit scoring process and offer consumer credit at the point of sale.
Comparing the risk assessment process with self-reported statements to using Mono's Open Banking infrastructure
Most BNPL models use customers’ financial statements to understand their finance patterns better and determine if they are capable of fulfilling their installments. We’ll be comparing what this process might look like when you rely on user-reported transaction data or Mono to perform your credit checks.
Here’s what the flow of a BNPL user journey without Mono’s APIs looks like.
Here’s what the flow of a Buy Now Pay Later user journey with Mono’s APIs looks like.
In this process, you can observe how seamless it is to securely access data for decision-making using Mono’s products. Possible drop-offs are mitigated by the speed of the return of requested data enabling quicker decisions.
You can also watch this video to see what the experience looks like for both the business and the customer.
How to scale your credit risk assessment process with Mono
As a Buy Now Pay Later business, a solid credit risk assessment is what stands between your ability to provide access to credit financing for customers and improve your repayment rates. With Mono’s Open Banking infrastructure, you’re able to do this, reduce business risks, and also simplify an otherwise manual and slow credit-decisioning process.
At Mono, we’ve built a powerhouse of Open Banking-powered solutions that unlocks ways for Buy Now Pay Later services to offer purchase financing, scale their operations, and make more data-informed and secure credit decisions. As a Buy Now Pay Later service operator, you can leverage Mono’s APIs to verify customers’ identities, and view their historical transactions and income information, to build processes that enable you to make faster and more accurate financing decisions.
This way, you can remove the barriers associated with a less efficient BNPL model and optimize the credit financing experience for both your business and customers, by simply using Mono.
We hope this article has helped you learn the ways BNPL businesses can scale their risk assessment process with Mono. If you’re interested in building with Mono, you can get started here or reach out to our team at sales@mono.co.
