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BNPL: Why Paying Later is the New Way to Shop Smarter
With the rise of digital financing and the shift away from traditional credit cards, BNPL presents a compelling alternative that aligns with the needs and preferences of modern consumers
Currently, BNPL is predominantly used for smaller purchases, with an average transaction value of less than Dh3,000.
Let’s face it — In today’s digital age, convenience is everything. Whether it’s ordering groceries with a tap of a button or streaming your favorite shows on demand, we’ve grown accustomed to having the world at our fingertips. And this shift has extended to how we manage our finances, too.
Imagine bringing home your favourite product without the immediate burden of full payment or dealing with complicated credit checks. This is now a reality with Buy Now Pay Later (BNPL) services. Designed to disrupt conventional credit card systems, BNPL empowers customers to indulge in their must-have items while spreading the cost over manageable installments.
Whether you're exploring luxury fashion or booking a vacation, BNPL options are now a common sight at checkout, offering a seamless and flexible way to shop.
Understanding Buy Now, Pay Later
In the dynamic realm of retail and e-commerce, the BNPL model is rapidly reshaping consumer purchasing behaviours. This innovative payment method, which enables consumers to purchase goods and services instantly while deferring payment into manageable, interest-free installments, has gained substantial popularity.
In contrast to conventional credit cards, which often come with high interest rates and hidden fees, BNPL plans provide a clear, structured repayment schedule without additional costs. At checkout, customers can choose to receive their product immediately and spread the payment across three or four installments. These payments are evenly spaced and automatically deducted from their payment card. As long as payments are made on time, there are no additional fees or interest charges. This transparency and ease of use have contributed to the growing popularity of BNPL among consumers seeking to manage their finances more effectively.
As long as payments are made on time, there are no additional fees or interest charges on BNPL transactions.
The Covid-19 pandemic exacerbated many pre-existing issues of financial stress, such as missed payments and reduced credit limits, leaving an opening for new payment methods to emerge. BNPL solutions capitalised on this need by offering an alternative to credit cards and traditional financing. Designed to let shoppers buy products and pay for them in a set number of installments over time, BNPL options often come with minimal to no interest rates or hidden fees, ensuring that customers incur no extra costs.
A Thriving Market
As a rapidly growing hub of innovation and economic progress, the UAE is witnessing a sharp rise in the adoption of BNPL services. This trend reflects a broader global shift towards more flexible financial solutions, catering to the evolving needs of consumers.
Projections for the UAE's BNPL market show strong growth on the horizon. According to a recent report on 'Buy Now Pay Later Market', BNPL payments are expected to increase by 18.5 per cent year-on-year basis, reaching a substantial value of $ 2.45 billion in 2024. Over the medium to long term, the outlook remains optimistic, with experts forecasting a steady adoption of BNPL. The payment method is projected to record a compound annual growth rate (CAGR) of 12.4 per cent between 2024 and 2029. As a result, the gross merchandise value in the UAE is anticipated to rise from $2.07 billion in 2023 to an impressive $4.41 billion by 2029.
The expansion of the BNPL market in the UAE can be attributed to several factors, including a growing number of new players entering the sector and the increasing popularity of this payment option among consumers.
Jack Mitchell, Senior Content Specialist at Tabby, said the UAE experienced a massive increase in online shopping, coinciding with the growing demand for flexible payment options.
Jack Mitchell, Senior Content Specialist at Tabby, reflects on the rapid growth of the BNPL landscape: “In the last five years, we’ve grown from a small start-up to having nearly a third of the entire Saudi Arabia and UAE eligible population as customers. This reflects the wider boom in the BNPL industry. Secondly, we built Tabby digital-first, ensuring we were ahead of traditional banks by creating a tool that fit how shoppers wanted to use it. And lastly, the UAE experienced a massive increase in online shopping, coinciding with the growing demand for flexible payment options."
“Leading BNPL providers have established a broad network across sectors like retail, travel, and groceries. The service offers a seamless journey for customers, with instant decision-making and no fees or hidden costs. By dividing payments over a few months, consumers gain increased spending power, enabling them to afford items they might not typically budget for — such as upgrading to a better laptop that would otherwise be beyond their reach if paying upfront,” says Ammar Afif, CEO and Founder of Cashew.
Ammar Afif, CEO and Founder of Cashew, said leading BNPL providers have established a broad network across sectors like retail, travel, and groceries.
Historically, the target market for BNPL has been the younger generations, Millennials and Generation Z. For young adults seeking to manage their finances responsibly without falling into debt traps, the interest-free nature of BNPL is particularly attractive. Moreover, the shift to a more digital-first economy has aligned perfectly with the preferences of these digital natives, who prioritise convenience, transparency, and instant access to services.
Shailesh Dash, a Dubai-based financier and serial entrepreneur, believes the appeal lies in the ease of access and flexible payment plans. “Gen Z typically faces stricter entry requirements for traditional credit, while BNPL offers a more straightforward onboarding process," he says.
Shailesh Dash, a Dubai-based financier and serial entrepreneur, said open banking is rapidly becoming a significant catalyst for the expansion of BNPL services.
"With fewer entry barriers, lower fees, and an effortless user experience, it’s no wonder BNPL has gained such traction."
Changing Consumer Habits
The BNPL model has revolutionised how consumers approach shopping, shifting their purchasing behavior in significant ways. While the types of products being bought haven’t seen a dramatic change, BNPL has empowered shoppers to better plan and manage their monthly cash flow, easing financial pressures and enhancing the overall shopping experience.
Mitchell notes: "Ultimately, what shoppers are buying hasn’t dramatically changed, but what has is the ability for shoppers to plan out and manage their monthly cash flow," he explains. In fact, Tabby's Myth-busting BNPL report reveals that twice as many essential items are purchased through BNPL services compared to discretionary ones. This finding debunks the common misconception that BNPL is mainly used for splurging on luxury items beyond one's means.
Mitchell emphasises the convenience factor that BNPL offers. "Tabby allows customers to use a single, trusted payment method on pretty much any shop in the UAE. This puts minds at ease that your payment details aren’t distributed around several different payment partners. It also makes the whole checkout experience extremely smooth and familiar to the shoppers." With this simplicity, customers can enjoy a seamless transaction process while feeling secure about how their payment information is handled.
Meanwhile, Dash highlights how open banking is playing a pivotal role in further accelerating the BNPL landscape in the UAE. "Open banking is rapidly becoming a significant catalyst for the expansion of BNPL services," he says. "By facilitating the secure and direct exchange of financial data between banks and third-party providers, open banking improves the efficiency and accessibility of credit."
BNPL payments are expected to increase by 18.5 per cent year-on-year basis, reaching a substantial value of $ 2.45 billion in 2024.
Dash explains that this real-time exchange of data allows BNPL providers to offer more personalized financial solutions, tailored to individual customers' needs. "For example, it enables BNPL providers to deliver more personalized financial solutions using real-time financial data," he adds.
"Moreover, open banking can simplify and speed up the approval process for BNPL services, leading to more streamlined and user-friendly consumer experiences." This synergy between open banking and BNPL is fostering rapid innovation in the financial landscape, making it easier than ever for consumers to access flexible payment options.
Ensuring Responsible Usage
As BNPL services grow in popularity, concerns about financial overextension have surfaced. To address these concerns, BNPL providers are implementing robust measures designed to protect consumers and ensure responsible usage. “Typically, consumers with an ongoing transaction through a BNPL provider cannot initiate another transaction until the first one is fully paid,” highlights Afif. “Those who experience payment issues or fail to complete a transaction are likely to become ineligible for future transactions with that provider.”
In addition to provider-specific measures, regulations are being introduced to further safeguard consumers. These regulations aim to limit transaction sizes and durations, thus curbing the risk of financial overextension. These regulations will also allow BNPL providers to report defaults, making it possible for all providers to see these records. "This visibility helps prevent consumers from using multiple BNPL services simultaneously, and getting into further financial difficulties,” Afif explains.
Comparative Default Rates and Revenue Models
Mitchell, however offers a contrasting perspective on BNPL's financial impact. He points out that BNPL services generally exhibit a lower default rate compared to traditional banks. "Unlike traditional banks, where missed payments can lead to substantial debt due to interest charges, BNPL services often do not charge interest. Our revenue model does not rely on customers revolving on credit, which can account for up to 70 per cent of revenue for traditional credit card companies," Mitchell notes.
To further mitigate risks, we employ a comprehensive approval process based on various factors for each purchase. In the rare event that a user struggles to make a payment, their account is immediately frozen, and a sustainable repayment plan is developed. "We prioritise working closely with users to find manageable solutions rather than perpetuating a cycle of debt," Mitchell adds.
Looking Ahead
With younger generations gaining purchasing power and credit cards becoming less favored, BNPL is emerging as a disruptive force in the payments industry. This flexible payment solution is set to revolutionise how consumers manage their spending, offering a viable alternative to traditional credit options and enabling users to spread payments over time without the burden of interest fees.
Hand with shopping cart and hand with credit card. Shopping time and buying with a credit card. Buy now pay later. Ecommerce sales and sale of goods, online trading platforms
The shift from credit cards to BNPL reflects broader changes in consumer preferences. BNPL's appeal lies in its ability to provide immediate access to goods and services while allowing for deferred payments, making it an attractive option for those seeking greater control over their finances. This trend is further fueled by the growing demand for digital financing solutions, which align with the UAE's increasingly tech-savvy population.
“BNPL has evolved from a retail-specific payment method to an everyday financial tool used by millions. Financial innovation will continue over the next few years, and BNPL has proved that success will come if you put customer needs at the heart of your business. Tabby is already exploring new ways in which we can provide new financial services to customers in the UAE to help them do more with their money,” Michelle concludes.
Currently, BNPL is predominantly used for smaller purchases, with an average transaction value of less than Dh3,000. However, as consumer confidence in BNPL grows, its application is expected to extend to higher-value items. Afif notes this shift: “The option to use BNPL for higher-value items, such as healthcare for IVF or cosmetic surgery, is expected to grow. This will provide consumers with a way to finance life-changing decisions.”
Is BNPL Fuelling Impulse Spending or Managing Cash Flow?
The rise of BNPL services has sparked a heated debate. Critics often argue that BNPL platforms encourage reckless spending by allowing consumers to indulge in impulse buys, especially when it comes to discretionary purchases. While this concern may seem valid on the surface, Tabby's recent ‘Myth-busting BNPL’ report suggest otherwise.
> A striking 77 per cent of shoppers revealed that they plan to use BNPL options for essential purchases rather than luxury or non-essential items.
> Two-thirds of Tabby’s shoppers stated that BNPL has become an indispensable tool for managing their personal finances.
> First-time users of BNPL are twice as likely to make essential purchases rather than discretionary ones.
— kushmita@khaleejtimes.com
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