The regulation of Buy Now, Pay Later (BNPL) products under the Business Laws (Amendment) Act, 2024, passed by Kenya’s National Assembly, marks a significant step forward in ensuring consumer protection and fostering sustainable growth in the BNPL sector. This legislative move recognizes the need to safeguard consumers while supporting the expansion and sustainability of BNPL services in the country. BNPL is a rapidly expanding payment method worldwide, offering consumers the ability to make immediate purchases without the full upfront payment, which they then pay off over time.
In Kenya, BNPL services such as Lipa Pole Pole, Lipa Mdogo Mdogo, and Lipa Later have become prominent, providing consumers with financial flexibility and enhancing their shopping experience. This method of payment has not only transformed the retail and e-commerce sectors but also contributed to increased sales and higher average order values for merchants by attracting customers who either lack access to traditional credit or prefer the financial flexibility that BNPL offers. Consequently, BNPL is playing an increasingly important role in modern commerce by bridging the gap between consumer demand and financial accessibility.
The Growth of BNPL in Kenya
The growing popularity of BNPL services in Kenya reflects a broader trend of consumers seeking ways to spread out payments, thus making it easier to afford capital-intensive products and services. Over the past year, the BNPL payment industry in Kenya has shown robust growth, driven by increased e-commerce penetration. According to ResearchAndMarkets.com, the BNPL market in Kenya grew by 16.7 percent in 2024, reaching $1.26 billion. Projections suggest that this growth will continue at a compound annual growth rate (CAGR) of 10.7 percent from 2024 to 2029, potentially reaching a gross merchandise value of $2.10 billion by 2029. This trajectory signifies BNPL’s evolution from a niche market to a mainstream payment option.
BNPL services democratize credit by making it more accessible and affordable, thus benefiting both consumers and businesses. Consumers gain the ability to purchase items they need when they need them, while merchants see increased sales and customer loyalty. In Kenya, BNPL has become an essential purchasing option for a variety of products, including electronics, furniture, home appliances, farming equipment, motorbikes, solar kits, and construction materials for small-scale projects. Additionally, BNPL’s application has extended to services such as wedding packages, gym memberships, airfare, and hotel bookings, highlighting the versatility and broad appeal of this payment method.
Historical Context and Evolution
The BNPL model is not entirely new, having roots in installment plans and hire purchase agreements that have been around since before independence. Historically, these financing options were popular among civil servants, teachers, police, and other salaried employees. Companies like Kenya Credit Traders Limited, Africa Retail Traders, and Kenya Farmers Association promoted these financing options, emphasizing responsible lending by conducting credit risk assessments and requiring retailers to disclose all terms and conditions of transactions. These safeguards protected both consumers and retailers, ensuring that financial commitments were clearly understood and honored by both parties involved in the transactions.
The rise of BNPL services is also driven by changing financial behaviors, particularly among Millennials and Gen Z, who view BNPL as an alternative to traditional credit cards. Millennial and Gen Z consumers are generally more inclined towards flexible, short-term credit solutions that align with their digital-first lifestyles. Recognizing this trend, retailers have adopted the BNPL model to attract and retain younger customers. This shift highlights the important role of BNPL in meeting the evolving preferences and demands of modern consumers, thereby supporting the continued relevance and growth of the retail sector.
Regulatory Framework and Consumer Protection
The Business Laws (Amendment) Act, 2024
As BNPL services become more widespread, there is a growing need to protect consumers, particularly those who are vulnerable. Ensuring contract terms are fair, providing consumers with adequate information, and implementing protections comparable to those governing other forms of credit are crucial. The Business Laws (Amendment) Act, 2024, which brings unregulated BNPL products under the oversight of the Central Bank of Kenya (CBK), is a significant development. This legislative move aims to establish a regulatory framework that promotes transparency, fairness, and accountability within the BNPL market. Nevertheless, it is imperative for retailers to adopt responsible lending practices proactively to ensure the sustainable growth and integrity of the sector.
Transparency and Responsible Lending
Beyond regulatory measures, retailers must prioritize transparency by clearly communicating BNPL terms, including fees and potential consequences of missed payments. Transparency fosters trust and encourages responsible consumer behavior, which is essential for the long-term success and sustainability of BNPL services. Retailers also need to be mindful of risks associated with BNPL services, such as data privacy, consumer protection, and responsible lending, and monitor customer behavior to prevent overspending. By promoting transparency and responsible lending practices, retailers can contribute to a more stable and trustworthy BNPL ecosystem that benefits all stakeholders.
Balancing Innovation and Consumer Protection
The passage of the Business Laws (Amendment) Act, 2024 by Kenya’s National Assembly, regulating Buy Now, Pay Later (BNPL) products, represents a notable advance in securing consumer rights and promoting sustainable growth within the BNPL sector. This law acknowledges the necessity of protecting consumers while aiding the growth and viability of BNPL services in the nation. BNPL, an increasingly popular payment method globally, enables consumers to make instantaneous purchases without paying the total amount upfront, allowing them to pay over time.
In Kenya, BNPL services like Lipa Pole Pole, Lipa Mdogo Mdogo, and Lipa Later have become well-known, granting consumers financial flexibility and enhancing their shopping experiences. This payment method has revolutionized the retail and e-commerce industries, resulting in increased sales and higher average order values for merchants. It attracts customers who either lack access to traditional credit or prefer the convenience BNPL provides. Consequently, BNPL is becoming increasingly crucial in modern commerce by bridging the gap between consumer needs and financial accessibility.