Our previous note highlighted the importance of scale and partnerships for Buy Now Pay Later (BNPL) companies and the natural fit between payments and BNPL providers. We now examine in more detail the BNPL opportunity in emerging markets, given generally poor access to formal credit. We also identify 50 EM BNPL firms that are active in 12 emerging markets and profile 5 fast-growing sector leaders that could attract interest from strategic investors.
Emerging markets Buy Now Pay Later landscape
Source: Tellimer Research
The BNPL opportunity in emerging markets
We think emerging markets are promising terrain for the Buy Now Pay Later credit model given:
Low formal credit penetration rates
Booming e-commerce sectors
Employment growth and rising income levels
BNPL firms could also help to grow the pie for digital payments and e-commerce in these countries: flexible repayment options can attract customers who might previously have avoided or delayed their purchases.
That said, emerging markets also present significant barriers to the BNPL model. Relative to the experience in developed markets, default rates could be elevated due to consumers' lower income levels, and lower default costs for the borrower (in terms of damage to credit profile or exposure to legal recourse). Scale and partnerships can help lower credit risk costs, by allowing for better risk analysis and by increasing the cost of default for the borrower, who may subsequently be prevented from accessing services.
The EM BNPL universe is vibrant and growing
In the Appendix, we list 50 companies in the BNPL sector operating across 12 emerging markets. However, this list is not comprehensive; the universe of BNPL providers is growing rapidly as existing firms broaden their service offerings, and start-ups emerge to exploit nascent opportunities.
Leading EM BNPL companies that should be on strategic investors’ radars
We profile below five leading BNPL companies in ASEAN, India and the Middle East. As with the example of Square and Afterpay, these firms could link up with payments firms, or seek other types of combination (eg an e-commerce tie-up in the mould of Ant Group and Alibaba) to accelerate their growth.
1. Akulaku (Southeast Asia)
Akulaku, founded in 2016, is a digital finance platform operating in four countries in Southeast Asia: Indonesia, the Philippines, Vietnam and Malaysia. BNPL is Akulaku’s flagship product but it has also recently ventured into other areas such as cash loans, digital banking, and wealth management.
Akulaku has raised over US$200mn funding to date; its investors include Ant Group, Sequoia India and Blue Sky. Akulaku had 6mn users in July 2020, with annual transaction value at that time of US$1.5bn. The company has a 25% stake in Bank Neo Commerce and plans to take control of the bank later this year, with a view of transforming it into a fully digital bank.
2. Kredivo (Indonesia)
Kredivo, founded in 2015, is a leading Indonesian digital credit platform with Buy Now Pay Later as its core offering. Kredivo is owned by FinAccel, a Singapore-headquartered financial technology company. It uses AI-based decision-making processes to rapidly approve credit limits.
Kredivo had 2.2mn customers at end-2020 but expects this number to increase to 3.9mn by year-end when revenues are targeted to reach US$163mn off an annual transaction value of US$1.2bn. Indonesia appears to have great BNPL potential given that only 18% of adults have access to formal credit. Moreover, as per a survey conducted by Kredivo, c90% of individuals are already aware of the availability of BNPL services, while the pandemic has driven a surge in e-commerce.
Kredivo is also planning to expand to other Southeast Asian countries like the Philippines, Vietnam and Thailand. Kredivo’s parent, FinAccel, intends to publicly list its shares in the United States via a SPAC merger, targeting a valuation of US$2.5bn.
Kredivo business model compared to global peers
Source: Company presentation
3. Simpl (India)
Simpl, founded in 2016, is a leading player in India’s BNPL sector. The company offers instant account approval and enables users to pay in instalments for both point of sale and e-commerce purchases. Based on AI and machine-learning algorithms, Simpl gives users a credit limit in the range of INR5-20k (US$65-270). The firm does not charge any interest but there are late payment penalties. Consumers’ Simpl accounts consolidate all purchases; the balance needs to be cleared every 15 days. Simpl has over 7mn users and has partnered with over 4,500 merchants. The firm has so far raised more than US$26mn in funding.
4. Tabby (UAE)
Tabby, founded in 2019, has in a short span of time become one of the leading BNPL providers in Saudi Arabia and the UAE. It has 400k active users and 2,000 merchant partners. Tabby allows customers to pay for their purchases in four interest-free payments, billed monthly. The company generates revenues from merchants on its platforms, and through late payment fees. Tabby recently raised US$50mn funding, valuing the company at US$300mn. The funding round was led by Global Founders Capital and STV, with participation from Delivery Hero. The company recently launched a cashback loyalty program that rewards users who shop using the Tabby app, making BNPL a rewarding proposition rather than an extra cost for consumers.
5. ZestMoney (India)
ZestMoney was established in 2015 and is one of India's largest and fastest-growing Buy Now Pay Later companies, competing with companies like LazyPay and Simpl. ZestMoney serves 6mn consumers through its partner network of 3,000+ online and 15,000+ offline merchants.
The firm has seen strong growth in the pandemic; as per its CEO, it is doing 150% of pre-pandemic business and has recently seen a surge in app downloads and customer credit limit applications. The company claims to have reduced default rates in the pandemic by over 30% and its non-performing assets ratio is below 5%.
ZestMoney was ranked second in Deloitte’s Technology Fast 50 India 2020, which highlights the country’s fastest-growing technology companies; the firm has increased its revenues by over 2,700% over the past three years.