Float, the South African buy-now-pay-later [BNPL] startup, secured a R200 million (~$10 million) loan from Standard Bank, South Africa’s biggest lender to support its growth plans for the next four years.
South African BNPL startups have in the past struggled to attract capital from venture capital investors, with some investors stating that the model’s low profit and gross margins were not attractive. The $10 million investment into Float by South Africa’s largest bank might change this narrative and attractive investment into an industry projected to grow revenues by 35% by 2027.
Founded in 2021 by Alex Forsyth-Thompson, Float works by enabling shoppers to split purchases into a series of monthly instalments interest-free using the available limit on their existing credit card. The customer selects the number of instalments they want, and each merchant can customise what they offer their customers. The approval decision on a particular customer is based on the credit facility that’s been extended to the customer by their bank on the credit card.
The company claims that consumers using the service have an average basket size of R10,000, compared to the average R1,200 basket size of other BNPL products in South Africa. Float also claims to work with almost 7 million preapproved credit cards in South Africa. “There's a fair bit of credit in the [South Africa] market already and our job is to help people to use their credit in the best way possible,” Forsyth-Thompson said.
According to Float CFO Paul Ian Masson, the debt funding will mostly be used to fund Float’s instalment processing as the company continues to scale. “To fuel the growth of our merchants, a debt facility is the best option because it allows the business to scale quicker,” said Masson.
Float also has an offering instalments-as-a-service offering for merchants. Here, the merchant uses Float’s technology to get payment instalments from customers using its balance sheet, instead of Float settling the consumer’s payment upfront, as is the case with a traditional BNPL model.
“This is the first time we have provided funding to a [BNPL] company, with the structure of the facility also the first of its kind within Standard Bank,” the bank said in a statement.
Float’s model, according to Forsyth-Thompson, helps reduce default rates, as users would have already been vetted by the bank which provided the credit card. It also allows Float, unlike other BNPL providers in the country, to not charge late fees or penalties. Float claims that apart from helping shoppers responsibly manage their credit, it also helps merchants attract customers and banks to increase the volume of transactions on issued credit cards.
On Float’s growth prospects, Forsyth-Thompson stated that the company will be mostly focused on cementing its business model in South Africa before branching out anywhere else. “Before we look everywhere else, we want to embed our model into South Africa’s payments ecosystem.”