Safaricom, Craft Silicon tap into the buy-now-pay-later trend

Safaricom has expanded its credit services to include a Buy Now Pay Later (BNPL) product. Craft Silicon has also launched a similar product with different terms and target customers.

In the past week, two new Buy Now Pay Later (BNPL) products have been launched in Kenya. The first, Faraja, is offered in partnership between telco Safaricom and financial services firm EDOMx. The second is SpotIt by Craft Silicon, the software development company behind Little Cab, an e-cab app. Both products have the same fundamental model but are functionally different because they are offered on different channels, have different partners, and take different approaches to interest rates.

Craft Silicon’s SpotIt

According to Craft Silicon’s CEO, Kamal Budhabhatti, SpotIt was called a Get Now Pay Later (GNPL) product to set it apart from the competition. SpotIt offers shoppers the opportunity to make credit-based purchases and then repay their loans installmentally. The credit limits are determined based on the customer’s credit score, which is assessed by the bank through which SpotIt is accessed. Customers who purchase products on credit through SpotIt can repay their loans over a period of six to twelve months. According to Budhabhatti, SpotIt’s interest rates are comparable to or slightly lower than those of traditional banks. SpotIt also allows customers to create virtual cards for international purchases and payments.

Unlike other BNPL services, SpotIt is a mini app integrated into existing banking apps rather than a standalone service. A mini app is a small program that performs a specific function and can be integrated into a much larger app. This integration offers a key advantage, as potential customers are not required to download another app.

This strategy is similar to that of Safaricom and Telkom with their M-PESA and T-Kash apps, which incorporate mini apps from various partners, including financial services like Hustler Fund, a loan product launched by the Kenya Kwanza government, accessible as a mini-app within the two apps.

To use SpotIt, interested customers activate their accounts, select their desired merchant by inputting the merchant code on their app, and the merchant processes the items on a hub provided by SpotIt. Once the customer confirms the purchase on their app and accepts the terms and conditions, a unique code will be generated, finalising the loan booking, and confirming the sale completion to the merchant. SpotIt then transfers funds to the merchant for the sale.

Budhabhatti informed TechCabal that SpotIt has onboarded approximately 30-40 merchants. Craft Silicon has also partnered with four banks, including NCBA, to integrate SpotIt as a mini app, and others like Equity Bank are expected to join soon.

Speaking on the launch of the new product, Budhabhatti said, “We are proud to revolutionise BNPL in Africa and create a product that offers unparalleled value to our partners and customers alike.” He continued, “SpotIt represents a significant step towards financial inclusion and empowerment for individuals across the continent.”

Safaricom’s Faraja

Faraja has been in development for over a year and only went live a few days ago after approval from the Central Bank of Kenya (CBK). Like Safaricom’s other credit products, such as Fuliza, an overdraft offered in partnership with KCB and NCBA as partners, Faraja is a partnership between the telco and a financial services company named EDOMx.

Unlike SpotIt, which applies interest and allows repayments over six to twelve months, Faraja takes a different approach. Here, customers can make purchases ranging from KES 20 ($0.14) to KES 100,000 ($703) without any interest fee and have a 30-day period to repay the loan. However, Faraja’s services are limited to Kenya, so customers cannot use it for international purchases.

During the launch of Faraja, Peter Ndegwa, CEO of Safaricom expressed his optimism about the new product. “We continue to innovate M-PESA to empower business owners with different tools and solutions to run their businesses better and to faster grow their firms. Many businesses lose out on sales when a customer would like to make a purchase but lacks money at that point. We are glad to partner with EDOMx to offer Faraja empowering any business to grow their sales by enabling their customers to buy now and pay later,” he said.

Revenue model

Faraja earns revenue from commissions with its partner network, such as supermarket chains. These collaborations with merchants enable Faraja to earn revenue primarily by providing credit access, motivating customers to make purchases at the affiliated stores. SpotIt, accessed through banking apps, uses the same model and is also beneficial to banks, as they charge interest on the loans offered.

The BNPL market in Kenya

The BNPL market in Kenya has long been dominated by two companies: Aspira and Lipa Later. The market’s growth has been driven by the increasing adoption of digital payment solutions and the rise of ecommerce platforms in the country. Lipa Later made a swift and key move by acquiring the ecommerce platform SkyGarden when it faced sustainability challenges. This acquisition was instrumental in achieving Lipa Later’s goals, such as extending credit to small-scale retailers on the SkyGarden platform. Lipa Later has also partnered with Mastercard in a joint venture that aims to turbocharge the growth of BNPL payment solutions throughout Africa.

The appeal of BNPL lies in its flexibility, which attracts consumers seeking to spread out their payments for purchases. This model is particularly trendy among the younger population and individuals without access to traditional credit facilities. According to Craft Silicon’s CEO, SpotIt is targeted at young people who want the convenience of spread-out payments.

Fintech companies and startups have also played a vital role in driving Kenya’s BNPL market’s growth. Through partnerships with various online retailers, they have made BNPL options readily available to customers at checkout.

While there is potential for growth and profitability, the BNPL market faces certain challenges. Responsible lending practices and ensuring customers can make repayments are essential considerations. It will be interesting to observe how the market progresses in the future, given its current players and opportunities for lucrative growth.