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Why Buy Now Pay Later schemes are increasingly gaining traction in the UAE

The perfect fintech breakthrough came in the form of BNPL

In a chain of post-pandemic trends that could make consumers happy once again, BNPL (Buy Now Pay Later) will take the crown for the next few years.

Why wouldn't they opt for this exciting and convenient method of shopping that gives interest-free credit for all low-value bills with a feature of flexibility to choose their payment pattern.

BNPL is now seen as a twofer, benefiting both consumers and merchants; a good alternative to a high-interest credit card usage and cash on delivery.

As digital transactions increasingly become the preferred payment option and consumers look for solutions that are an alternative to the debt-based credit card system, the perfect fintech breakthrough came in the form of BNPL.

Upsurge in number of companies offering BNPL solutions

In just one year, the Middle East region has witnessed an upsurge in the number of companies offering BNPL solutions. Currently there are more than ten players; many of them well-funded by leading PE and investment firms. Players in the Mena region that have raised substantial funding are Tabby: $32 million, Tamara: $6 million, Postpay: $5.5 million, Spotii: $1 million and Shahry: $0.65 million (Source: MENAbytes and Wamda.com).

They are making their mark by creating value for merchants and also offering straightforward financial products to customers. UAE-based BNPL, Postpay, has partnered with MasterCard and the Commercial Bank of Dubai to offer consumers the region’s first virtual BNPL card solution. To consumers’ delight, it has tied up with all leading international and local brands, including Ounass, H&M, Footlocker, Dermalogica, The Entertainer and Squat Wolf and Alshaya G (Kuwaiti retailer with franchise rights for Starbucks and Hennes & Mauritz among others in the Mena).

Tabby is one of the top 10 players in the UAE and now boasts of over a million users in the KSA and the UAE. Take the case of Spotii, launched in 2020, tied up with 650 merchants and since then, its transaction volumes are increasing at an average of 90 percent month-on-month. Another player, Afterpay’s merchant base was up by 78 percent in fiscal 2021, generating a revenue of $693 million. Tamara is currently Saudi Arabia’s fastest-growing BNPL provider with a presence in the UAE and Kuwait.

Model expected to expand to 30 percent by 2026

With so much action happening on the BNPL ground, its user base is making equally big strides. Dubai-based management consultancy RedSeer says 10 percent of online shoppers in the UAE used the BNPL model in 2020 and this number is expected to expand to 30 percent by 2026 notching up a total value of more than $2bn in consumer credit. Egyptian BNPL platform Shahry has grown at 100 percent month-on-month since its launch in July last year.

What makes BNPL tick?

As with any new model in the financial sector, BNPL platforms that meaningfully engage with customers will see positive results and profitable growth in revenues.

Consumers love it when they get personalized recommendations for products. If merchants and service providers watch out for consumers’ interests, preferred channels and products across mobile, web, app and PoS systems and detect sore points in the purchase journey, they win over consumers more easily. What’s of essence in BNPL is clarity of communication and continuous engagement, till the last mile in the purchase journey.

Consumers are still not sure whether BNPL means taking on debt or deferring payment. That’s why BNPL players can help users understand the types of credit and plan their spends effectively. Younger consumers with little experience can be educated about managing their finances and how BNPL is useful in setting financial goals.

With the diminishing Covid-19 impact, we are also seeing the return of the offline shopping mode. BNPL players are not going let the opportunity pass by. They have already started partnering with leading retailers to offer BNPL at physical stores at checkout points as a point-of-sale financing tool. In addition, they are building integrated shopping platforms that engage consumers from pre-purchase to post-purchase, offering loyalty and reward programs to enhance engagement.

With millennials earning big bucks and taking to digital shopping like fish to water, BNPL can advocate this new idea to a new generation that does not want to be bound by loans and credit card payments, but loves to go online for all its shopping needs.

Raviteja Dodda is the CEO & Co-Founder of MoEngage