In December 2024, the National Assembly passed legislation to regulate Buy Now, Pay Later (BNPL) products under the Business Laws (Amendment) Act, 2024. This new framework is a progressive development in the face of a growing recognition of the need for consumer protection and the sustainable expansion of the BNPL sector.
BNPL is a fast-growing payment method across the world. Locally, names like Lipa Pole Pole, Lipa Mdogo Mdogo, and Lipa Later, have quickly been etched into Kenya’s lexicon to describe BNPL.
The introduction of BNPL has revolutionised the retail and e-commerce sectors.
Today, it is more than a payment method; it is a customer experience enhancer, offering immediate gratification without the full, upfront financial commitment. This aligns with modern consumer demands, boosting customer satisfaction and encouraging repeat purchases.
For merchants, BNPL is a growth catalyst. It broadens the customer base, appealing to those who cannot access traditional credit or seek financial flexibility. The result? Increased sales and higher average order values. Merchants offering BNPL also gain a competitive edge, attracting customers with the allure of such flexibility.
In Kenya, the popularity of BNPL services is on the rise as more consumers are looking for ways to spread out their payments, to afford capital-intensive products and services.
The BNPL payment industry in Kenya has recorded strong growth over the last four quarters, supported by increased e-commerce penetration.
According to ResearchAndMarkets.com, BNPL market in Kenya grew by 16.7 percent, reaching $1.26 billion in 2024. This growth is expected to continue with a compound annual growth rate (CAGR) of 10.7 percent from 2024 to 2029, resulting in a gross merchandise value of $2.10 billion by 2029. As a result, BNPL has transitioned from being a niche offering to a mainstream payment option.
In essence, BNPL enables more people to buy what they need when they need it. The merchants offering BNPL service are helping to democratize credit by making it more accessible and affordable for everyone. This is a win for both consumers and businesses, as it makes it easier for people to purchase while stimulating economic growth.
Today, a size-able and growing number of Kenyans consider BNPL as a key purchasing option for electronics, furniture and home appliances, farming equipment, motorbikes, solar kits and even building materials like cement, paints and other construction supplies for small-scale projects.
Interestingly, BNPL has also expanded to services, including wedding packages, gym membership, air fare and hotel bookings for holidays.
But, BNPL is not entirely a new concept. This model traces back to installment plans such as hire purchase that have existed since before independence. These financing options were popular with civil servants, teachers, police and other salaried employees of the years yonder.
Locally, they were promoted by Kenya Credit Traders Limited, Africa Retail Traders and Kenya Farmers Association.
Back then, responsible lending was prioritised. Customers underwent credit risk assessments to assess their ability to repay before entering into purchase agreements. Further, retailers were required to disclose the terms and conditions of the transaction, including payment terms, payment schedule, default notice, implied warranties and manufacturer guarantees.
These measures provided safeguards for both the consumers as well as the retailers.
The rise of BNPL is also attributable to changing financial behaviours. Millennials and Gen Z are drawn to these services as an alternative to traditional credit cards. Retailers have recognised this trend and are jumping onto this payment model to attract and retain younger customers.
As BNPL gains prominence, efforts must be made to protect consumers (particularly those who are vulnerable), by ensuring that contract terms are fair, consumers are given sufficient information and that they have adequate protections similar to those governing other forms of credit.
The enactment of the Business Laws (Amendment) Act,2024 that brings unregulated BNPL products under the Central Bank of Kenya (CBK), is a welcome development. However, retailers must also take proactive steps to ensure responsible lending practices.
Beyond regulatory oversight, retailers must prioritise transparency by clearly communicating BNPL terms, including fees and potential consequences of missed payments. This fosters trust and encourages responsible consumer behaviour.
There is also the need for retailers to be aware of other potential risks associated with BNPL services, including data privacy, consumer protection and responsible lending. There is a need to closely watch out for the customers, monitoring their behavior to avert the risk of overspending.
Effective regulation of the BNPL sector is essential—not just to shield consumers from potential exploitation but also to promote fair trade practices among industry players.
A well-crafted regulatory environment fosters financial inclusion, digital penetration and economic growth, by ensuring that BNPL remains a sustainable financing option.
As Kenya’s BNPL sector continues to evolve, collaboration between regulators, financial institutions, and retailers will be key to striking the right balance, between innovation and consumer protection.
By doing so, BNPL can continue to empower consumers, drive business growth, and contribute to the country’s financial ecosystem.
The writer is Watu’s Country Manager in Kenya
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