Just to rewind a little bit, this whole BNPL craze was exploding. I hadn't seen anything like it: interest free credit didn't really make sense to me and was very excited about the prospects of this business model. But at the same time, a lot of the people I spoke to in banking and lending were just like, the last thing South African needs is just more unsecured credit being piled on top. This isn't Australia, isn't Sweden where Klarna is from.

So I did take that to heart and looking into the BNPL space realised that in countries like Brazil, Mexico being two significant examples, point of sale interest free instalments have been there for ages offered by most retailers. Yes, it's now become tech enabled. But in those markets, it's done very much off the back of a credit card. And the bank is the key issuer of their credit, they understand the consumer and what they're earning. And the thesis was that the South African use case was far more similar to those markets, developing markets, high interest rates, very disparate levels of income. In some places, you'd argue over indebtedness of the middle class, as opposed to a massive need for financial inclusion, which is the narrative.

Yeah, and I just thought that that product would fit so well here, we just have to find a way to technically adapted and created here.

It's still dominated by your credit card issuers.

So most people if they have Apple Pay or Google Pay, they have loaded their credit card and that's probably the most popular form of payments, but these QR payment providers who have their own mobile apps is very, very popular. And it's accepted everywhere. And while they still represent a very small share in terms of total purchase volumes, they are by far the fastest growing, and that is why issuers are very, very concerned.

And these QR payment providers are also going into that credit space, where they're offering a small credit of maybe $500 to $1,000. But they're using very basic information - just your name, phone number, email - so it's much, much faster and easier to apply for that new QR payment credit versus a traditional credit card.

What we do see is, working with larger providers, a real growth in adoption. If I think about the three months worth of data, live data, that we've got in the bureau - so December into January and Feb - interest free, predominantly online, for a term of no more than three months. There we see 3.8 million unique customers.

A big number, right? And they've made 50 million transactions, spending almost 20 million pounds. And it's not just your Gen Z. It's not just your Millennials, it's across all demographics.

And actually the fastest growing demographic is the 35 to 44 age band. Suddenly, I'm now just outside of that, but it's reflecting the point of becoming more mainstream, right? This is established, right? It's here to stay.

How do we let brands get in front of first party data customers with the highest intent the world has ever seen? I mean, our click to sales ratio is 55%.

Brands are paying billions in marketing budgets, so that you can see the advert you then clicking the advert getting to their site or going to their store pulling your credit card out and paying billions in interest and fees to credit card companies to buy the products.

What we've done is we've sort of said, why don't we circumvent the middleman? Why don't we let brands rather pay our customers? In other words, use the brand's marketing budget to subsidise the cost of credit to our customer, and convince our customer to buy from that brand.

The whole equation makes more sense. The customer has more sustainable buying power, because the brand is subsidising the cost of credit to the customer. So the brand can make a sale.

And then the credit scoring engine started taking shape. And over, you know, Covid, after Covid, we started bringing defaults down from 50 to 40, 40 to 30, 30 to 20, 20 to 15. And then, you know, the tougher bit came because it was not only about the credit scoring, it had to be a lot of engineering, then it's about the experience of the consumer, how is the product structured, you know, the first interaction of the consumer with the company till after he or she has repaid, everything matters. How the lead generation happened, how is the customer support interacting with the customer, or what has been experienced in app, what is experienced at the point of repayment, you know.

We've seen many times if the customer faces challenges in repaying whether or not it was our issue or an issue at the wallet side, the customers could turn rogue.

There was so much to it that we learned over time. And you know, when we actually closed our lending book pre-acquisition, the latest cohort actually close it under three per cent default

It's a good point that you make because I think that that's a very key differentiation. Alternatives will make money by consumers not paying, we make money by consumers payng us back. It's about using it in the correct fashion -customer defaulting, right, we're not making interest, we're not compounding that interest. So for us, it is ensuring that the customer remains within their spending limit, budgeting properly and using the platform in a responsible manner. In that way, our our vision and what's what's healthy for the consumer is very much in line.

And remember, the consumer is not our customer, the merchant partner is our customer. And if you love a brand, and you buy from them two or three times a year with PayJustNow we may be empowering you to buy more of that product, or more often. I think back to our very first merchant partner -they had no reason to, but they gave us a chance. They're called Freedom of Movement known by the acronym FOM. And they at the time probably had about 20 products, they were above average value, they were durable, they were aspirational, was high quality, and at that time in 2019, the last relaxed memory that we have was the World Cup in 2019. You know, they traded off the popularity of what was their most iconic product and that was the FOM x Kolisi. It was veldskoen shoes, which they made in collaboration with the Springbok captain Siya Kolisi, in the same year that he took our nation's dreams and team to Japan and inspired us all with that scintillating campaign that gave South Africa yet another Rugby World Cup title.

So I think along the way, partnering with merchants, storied merchants that have a following was quite an important thing to get right from the beginning. And then we needed to overlay that with consistent, predictable, transparent service to the consumer that could build trust.

So to give you a bit of background, when manufacturers and distributors are bringing on customers, they ask them to fill out a credit application. That credit application is a very simple document. Typically it's a PDF or Word Document. But things completely spiralled out of control from that point. There's just a lot of back and forth, there's missing and inaccurate data, and companies get credit that shouldn't get credit, and companies get denied credit that deserve credit.

These other companies that we had before we realised it was a problem, but at Nectarine Credit, we've automated this entire vendor credit application process.

Yeah, you know, we're definitely helping these companies scale quite a bit. Not only are we decreasing their cash conversion cycle so they could just build cash on their side, which is important to them. If we can actually get these customers to a negative cash conversion cycle, then cash will just build. But I think more importantly, we're able to double to triple the company's revenues. And then, you know, company could either take that money to reinvest, or you could parlay that into raising a larger venture round, which then they could hire more people, potentially introduce new products, and continue building the brand out there. I think that's definitely the best feedback we've gotten.

And in some cases, customers have staved off venture capital completely, because like, hey, now I don't need to raise money for inventory or for marketing. So I could use this debt solution/ working capital solution to meet that, and I'll never have to raise another venture round again. And thus, I could keep more ownership of the company. So it just really depends on the route they want to take to grow their company.

So, about the history... actually, Russian retail lending is relatively young, it started less than 20 years ago and it made a huge jump from where we were - just basic stuff 15 years ago - to the state that we have now.

There's a positive outcome of this short history, we don't have much of the legacy technologies, etc, that some of a large international group experience that, take core banking systems, they don't have something that was developed 50 years ago, they're in a more or less modern state.

Another indicator that is significant is that BNPL meant around 3% to 4% of the total e-commerce sales in Spain, while in Sweden it is around 20%. So we see significant growth expectations for the years to come.

Then also remember that if I'm a merchant and my aim is to maximise my sales, and suddenly I have to talk to five different lenders, or negotiate with them, I may not have the skills nor the time, to do it. Well, we do that for you. So you just have to focus on what you best know, which is selling through your, your webpage, and we take care of the rest.

Because I've seen a lot of fintechs out there, which had maybe a fantastic proposition, but it lacked a few elements to be really, really successful. We do see some smaller banks that have opened with a very clear digital strategy. They have been very successful to attract customers with a very strong marketing campaign, very visible in the media, and very visible in the streets, etc. What I do think in order for them to be successful, they need to make sure that the bank is not only marketing, colourful websites and apps, but they also need to make sure they integrate the risk policy, the credit risk policy.

I can answer your question as a consumer. And in general, I can also share my viewpoint on the whole market. No doubt Hong Kong is a very competitive market, the credit card issuers are facing strong competition. For myself, I think I have more than five cards but in general, I will focus on one or two cards that're my major transaction medium. Why I want to just focus on using one or two cards is because of the benefits, because of the discounts, because of the cashback. You can go to different shops or restaurants, you have discounts, you have rebates and then on different purchases, you have also other privileges. That's the major motivation. I think, in general that's true for other consumers in Hong Kong.

And on the other hand, as you're said because they're always new cards coming out with new features, especially the welcome gift, you spend a few $1,000 and then you can get some cash coupon or you can get some premium or whatever - then that will motivate you to to apply for new card, but after that it will just sit there. I think that's a very normal way of life.

"The risk of giving into temptation is as old as humanity. But there are reasons to think that people today are having to work harder to resist it, particularly when it comes to consumer behaviour. Digital technology has made it easier and faster to buy goods and services in an instant, without the delays of processing that once comprised an inbuilt cooling off period". This might sound like a headline from today's papers, but in fact it was from an article in The Financial Times published seven years ago, almost to the day - at a time when Klarna was around, yes, but only just beginning its global expansion, Affirm was only two years old, and AfterPay only a few months old. Welcome back to How to Lend Money to Strangers, the podcast about consumer lending strategies across the credit lifecycle and around the world.