In the heart of South Africa’s rapidly evolving fintech landscape lies a revolution in affordability. As the country navigates the complexities of financial inclusion with 18% of the population still being underbanked, innovative technologies are emerging to reshape the way consumers access and afford products. From sophisticated KYC solutions to the rise of Buy Now Pay Later, let’s explore South Africa’s journey toward being more inclusive and financially savvy.
Getting to know your customer: A deep dive into affordability analysis
Data has emerged as the key to unlocking insights on consumer financial behaviour. KYC solutions are pivotal in understanding financial opportunities based on these insights. Historically used for identity verification and risk assessment, KYC has evolved to incorporate a crucial component in the financial industry: affordability analysis.
With an expected annual growth rate of 21.9% from 2023 to 2028, the KYC industry is rapidly becoming essential for businesses globally. This trend is underscored by the fact that 75% of medium to large organisations are actively considering the implementation of KYC solutions to enhance and streamline their operations. KYC solutions now delve into a consumer’s financial profile, examining their spending habits, income streams, and financial behaviours. These advanced tools enable corporates, financial institutions and retailers to make more informed decisions about whether a consumer can afford a particular product or service. It’s a game-changer for both consumers and businesses. Gathr’s affordability module is one such example, of a South African solution that has been able to effectively assess affordability for consumers; whether they’re securing a cellphone contract, investing in solar panels, or navigating the home buying process. According to Michael Bowren, co-founder of Finch Technologies.
By analysing a consumer’s transaction history, KYC solutions can assess their creditworthiness without relying solely on traditional credit scores. This is especially valuable in South Africa, where many consumers lack a formal credit history. KYC-driven affordability analysis allows a broader range of individuals to access financial products and services tailored to their specific circumstances.
BNPL: The future of affordable shopping
Experiencing a remarkable 22.2% growth from 2022 to 2023, the BNPL industry is set to reach a revenue milestone of US$896.8 million. This impressive growth highlights the significant impact BNPL services have had on revolutionising the retail landscape in Africa.
In the past, when African consumers sought to make a substantial purchase, such as buying a couch or fridge, without immediate funds available, they would often find themselves bound by layby contracts that frequently imposed high-interest rates. Today BNPL platforms like Happy Pay offer consumers the flexibility to purchase goods and services immediately and pay for them in instalments over time, often interest-free.
What sets BNPL apart is its focus on affordability. These platforms leverage technology to assess a consumer’s financial situation in real-time, ensuring that the purchase aligns with their income and spending capacity. This approach reduces the risk of over-indebtedness and empowers consumers to make informed decisions about their purchases.
At Happy Pay we use real-time open finance informed affordability to empower South Africans with zero-interest instalment payments. Giving them a responsible and affordable alternative to high interest credit. Wesley Billett, co-founder & co-CEO of Happy Pay.
Moreover, BNPL services often require little to no credit history, making them highly accessible to South Africans who may have been excluded from traditional financing options. As a result, consumers have greater control over their financial choices, fostering a sense of financial empowerment and responsibility.
Fintech synergies & challenges
The synergy between KYC solutions and BNPL services represents a profound shift in the way South Africans access products and manage their finances. These technologies work in harmony to ensure that consumers can make purchases that align with their financial well-being.
When a consumer chooses a BNPL option, the KYC-backed affordability analysis comes into play. Real-time data on income and spending habits help the BNPL provider determine suitable instalment amounts and repayment schedules. This ensures that consumers can comfortably meet their financial obligations without undue strain.
In addition, the responsible use of BNPL can contribute positively to a consumer’s credit history, potentially opening doors to more financial opportunities in the future. By marrying KYC and BNPL, South Africa is paving the way for a more financially inclusive society.
While South Africa’s affordability revolution holds immense promise, it is not without challenges. Data privacy and security concerns must be addressed rigorously to protect consumers’ sensitive financial information. Moreover, there is a need for robust financial education programs to ensure that consumers make informed decisions when using payment technologies like BNPL.
Furthermore, businesses must tread carefully to avoid over indebtedness, as BNPL services become more widespread. Striking the right balance between access to credit and responsible lending is crucial.
Improving financial access in the future
The marriage of sophisticated KYC solutions with the convenience and flexibility of BNPL services is reshaping the financial landscape, promoting inclusivity, and empowering consumers to make financially sound choices and giving them access to products that provide a more comfortable lifestyle.
As South Africa continues to embrace these technological advancements, it is essential for all stakeholders—government, financial institutions, businesses, and consumers—to work together to ensure that affordability remains a driving force behind the nation’s economic growth and prosperity. With the right safeguards and education in place, the affordability revolution can pave the way for a more financially healthy South African consumer.
