The Global Startup Ecosystem Report Fintech Edition
How “Buy Now, Pay Later” Redefined Financial Inclusion
This contributed article was prepared by Walid Hassouna in a personal capacity. The opinions expressed in this article are the author’s own and do not necessarily reflect the views or position of Startup Genome.
With soaring prices and dwindling purchasing power, people are growing out of the traditional procedures and limitations that come with applying for credit cards. Instead, many are finding “Buy Now, Pay Later” (BNPL) to be a more convenient solution. Dating back to the 19th century, the BNPL model makes onboarding customers to installment plans a lot faster than accessing conventional bank credit and in turn benefits businesses by making their products more easily attainable. I still find it mind boggling that the model was introduced to the Egyptian market almost two centuries ago. Today, it has evolved to become a very viable Fintech product around the world.
The Need for “Buy Now, Pay Later”
Due to a range of uncertainties, many people around the world find it hard to apply for and be approved for bank credit. Personally speaking, for someone who’s based between Cairo and the U.S., I have both BNPL and traditional bank cards. For any transaction that I make through the latter — for example, making an Easy Payment Plan transaction using my bank card — I have to go to the app, pick this specific transaction, pick a tenor, and agree on the interest rate. It’s not easy for me to understand my statement and verify the fees associated with each transaction. In comparison, my BNPL accounts are much more straightforward.
The modern BNPL model was created to provide an easier checkout, faster onboarding, and more transparency in accessing and handling credit. Most BNPL models outside of Egypt are free for the customer in every aspect — zero interest, zero fees. Due to the relative ease and transparency compared to traditional credit processes, demand is high and BNPL models have emerged around the world. BNPL is one of the fastest-growing segments in consumer finance, with Reuters reporting that transaction volumes hit $120 billion in 2021, up from just $33 billion in 2019.
An Easy Solution
When we decided to build valU, a BNPL startup, we aimed to solve hurdles specific to the Egyptian market. The first of these was that it took at least 72 hours to get underwritten — people seeking credit needed to submit an illogical amount of documentation. There might even be a visit to their house, work, or both. It would take almost 21 days after the application for a normal citizen to receive an unsecured credit card. We found the slow timing, extensive documentation, and external verification huge burdens to obtaining credit. An easy solution popped to mind — we wanted to build a model that allowed customers to instantly access financial products with ID only, and with no in-person visits or guarantors required.
We were met with skepticism. But because we use data to underwrite customers, and because we have immense professional experience in the banking system, we understand every bank and each policy. As such, we have a very low cost of risk compared to other lending institutions.
valU acquires 30,000 customers per month and processes an average of 100,000 transactions worth EGP 700 million per month, which makes it the biggest BNPL provider in Egypt and the second among Egyptian consumer finance companies.
And all this in just four years. We have made accessing credit easier for ordinary people, our risk is under control, and we didn’t burn a lot of cash. valU has been profitable from January 2020, exactly two years from launch.
Our disruption of the Egyptian lending market led to others following suit. Today, there are a lot of products in the market that are similar to us or are a carbon copy of our business model. We are also partners with e-payment companies such as Paymob and PayTabs Egypt, which are able to provide installment-based plans to merchants for online acquisitions through valU.
Inflation-Proofing a “Buy Now, Pay Later” Model
Globally, BNPL is usually based on 0% interest for the customer and a commission from the merchant. Our model is different: 50% of our transactions are 0% for the customer and the other half is a long tenor with an interest rate and purchase fees payable by our customers. That’s why our business is inflation-proof — our value hasn’t been affected by macroeconomic factors. During recent inflation, our valuation actually went up thanks to our interest-bearing products, which differentiate us from traditional BNPL models.
Today, there are around 30 different players that are very similar to valU. This creates a very healthy competitive environment that not only provides benefits to our customers, but also reflects on the broader business cycle of commerce. It fascinates me that a financial instrument as old as time has been rethought as a Fintech innovation that disrupts markets and changes the lives of people for the better.