The business of today is no longer a physical place. It’s now conducted in millions and billions of devices all over the world. . Even more interesting is the fact that, in Nigeria, lots of software developers, creatives, etc. are able to work for companies abroad from the comfort of their homes with their smart devices. Being able to run a business online or work remotely for global firms is transforming the lives of many Nigerians.
The barriers to entries are very simple and should be easy to surmount. One should have the skills needed, be responsible and be able to communicate effectively. We mustn’t forget rock solid internet and a suitable device as well.
However, the worsening economic conditions can’t be ignored, the rate of inflation in Nigeria is currently over 17%. The cost of these devices continues to rise. Thus making it harder for people to purchase them as they can’t afford to buy them outright. Individuals would rather smooth their heavy expenses over a period of time. This has given way to more innovative credit offerings at the point of sale. For instance, people can buy now and pay later (BNPL) and finance the purchase of devices over a period of time.
The rise of BNPL in Nigeria
Access to affordable credit has earned its place as a notable driver of growth. It’s an effective way to provide people with access to their needs. This has since extended to devices as well. Today, you can own even the most recent release of a top device manufacturer without paying for it outrightly.
Device finance facilities are offered as a form of credit at the point of purchase. They allow a customer to pay for their smartphones, laptops, tablets, etc. in instalments, rather than all at once. It’s a type of BNPL payment system. However, long before BNPL got its name, it was already formally in operation in Nigeria. It’s applied as far back as 2015. Fouani, the LG distributor was amongst the first major brands to do it on a large scale; offering flexible payment plans at the point of sale for their appliances. It’s arguably a major contributor to their expansion in Nigeria.
In 2018, MTN partnered with PayJoy to launch their own device financing scheme. This partnership also included Sterling Bank, through which customers would service the loans. How do they ensure that those who sign up for this scheme hold up their end of the bargain? PayJoy makes use of technology that locks users out of the devices if they delay in their payments. Carbon Zero has also made significant progress with their BNPL proposition; offering zero interest device financing services to customers across a range of merchants.
How device financing works
Customers who are interested in financing a device over a period of time are usually required to submit an online application on the merchant’s website or with the BNPL partner. The duration for financing is usually between 3 – 12 months. This loan application typically requires a valid ID, bank account statement and the customers bank verification number (BVN). However, requirements may differ depending on the provider’s terms.
The merchant or provider assesses the application and makes their decision. This usually is done within a few hours like on Carbon Zero’s platform. If the application is successful then the customer is approved to pick up their device. Although, most providers request for an initial deposit of about 20 – 30% of the total cost. Then they request for equal installments to be paid monthly for the agreed upon duration and interest rate.
|Benefits of device financing for individuals||Benefits of device financing for telcos and merchants|
|No need to pay cash upfront for the device||Increased sales volume and sales revenue|
|Payment can be spread across several months, even up to a year or two||Increased data revenue for telcos as more people own smartphones and other devices|
|Interest rates from device financing schemes tend to be very low and sometimes 0% for shorter periods||Grow their customer base as those who couldn’t afford their products upfront are now able to access them|
Benefits of device financing to lenders
Lenders are vital players in the BNPL game. Merchants and providers don’t have to bear the risk of funding BNPL payments. This is where lenders come in. A BNPL provider can connect lenders and merchants through a BNPL engine. Lenders disburse loans as payment to merchants for goods bought on credit by their customers. The customer would then proceed to service the loan with the lender like normal.
This provides lenders a viable, consistent and profitable way of distributing their loans. Also, they are more likely to process larger loan amounts depending on the size of purchases. People are definitely shopping more than they’re applying for loans directly. This is a great avenue for lenders to expand their customer base exponentially with minimal effort on their part.
Potential risks of device financing BNPL providers and merchants
Device financing offers a way to democratize technology in an increasingly connected world. As lucrative as it can be, it’s not without its risks. The BNPL payment model is built on an assumption of trust. Trust between provider and customer that the customer will hold up their end of the agreement and complete their payments within the agreed period.
Customers refusing to make their payments can completely cripple the merchants and BNPL providers’ businesses. They’ll suffer a loss in stock and watch their revenue plummet. This leaves them in a much worse situation than when they weren’t even making a lot of sales in the first place.
Mitigate the risks of BNPL on Lendsqr
These risks associated with device financing can be managed with an effective credit scoring and decisioning system. Merchants should only approve customers for devices they can “afford” (won’t be spread too thin with monthly payments). Businesses can take advantage of Lendsqr’s BNPL engine which works with a robust and highly effective loan decision system.
Merchants can set up their businesses – not limited to device merchants – on Lendsqr and access an ecosystem of lenders to underwrite loans for their customers. Likewise, lenders interested in growing their loan book and increasing their loan distribution can sign up on Lendsqr for free and reach out to firstname.lastname@example.org to set up the BNPL option at checkout.