Gulf’s $2bn buy-now-pay-later sector shrugs off global slump

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• UAE online shoppers using BNPL facilities set to triple to 30% by 2026
• Service taps into younger consumers who lack other means of credit

Despite the global pessimism surrounding buy-now-pay-later (BNPL) finance providers, the Gulf region continues to push forward with related acquisitions and expansion plans.

The recent string of big ticket global BNPL casualties highlights several companies with direct links to the UAE.

Abu Dhabi-backed Swedish operator Klarna last month managed to raise $800 million in new funding, but its valuation has since slumped to $6.7 billion.

Once considered Europe’s most valuable private tech company, Klarna is now worth 85 percent less than it was a year ago, and it has slashed 10 percent of its workforce.

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In recent weeks, Australian BNPL provider Zip has put the brakes on its ambitious global expansion plans, scrapping plans for a merger with US rival Sezzle.

Zip also recently announced impairment charges on some of its regional acquisitions, including a $16.3 million deal to buy Dubai-based BNPL provider Spotii.

“Reflecting current market conditions, the company has reviewed the goodwill against the Spotii, Twisto and Quadpay assets, and is assessing the need to take an impairment charge,” Zip said in a statement.

Rapid growth

Despite these developments, the Middle East market, especially in the UAE, appears to have been cushioned from the global downturn – at least for now.

“The BNPL trend in this region is growing extremely quickly. In 2020, our report shows that 24 percent of people interviewed said they’ve used such an option at least once,” Remo Giovanni Abbondandolo, senior vice president for MENA at Checkout.com, a UK-based fintech worth around $40 billion, told AGBI.

“This number grew to 55 percent last year. Our data also forecasted that, by the end of the year, 82 percent of users shopping online will have used BNPL at least once as a payment method.”

Checkout has a direct connection to the region, as in April last year it led a $110 million funding round for Saudi BNPL operator Tamara, which used the cash injection to expand into the UAE market.

“We are pleased to launch in the UAE with leading retailers like Namshi, Shein and Styli, Abdulmajeed Alsukhan, CEO and co-founder of Tamara, said. 

“This adds to a pool of more than 3,500 merchants across the region who are empowering their customers with new payment solutions.” 

“Given the strong market potential and current growth rates, we expect to sign up 1,000 more merchants here by the end of the year.

Debt defying plans

Alsukhan believes the Middle East BNPL sector will weather global challenges as it is a new market and, therefore, more flexible.

“The market is very young, regardless of how many players are out there. We know that BNPL really only took shape in this part of the world in the last few months. 

“Whether it’s Saudi or UAE, the room is still there for the right players to come up with the right solutions,” he told AGBI.

Management consultancy firm RedSeer forecasts that the number of online shoppers in the UAE using BNPL facilities will triple to 30 percent by 2026, valuing the sector at $2 billion.

There is still an appetite for the sector among financiers. On Wednesday, Dubai-based BNPL operator Tabby announced it had signed a $150 million debt financing deal with US-based firms Atalaya Capital Management and Partners for Growth.

The company said it was the largest credit facility ever secured by a fintech in the Gulf region, adding to the $275 million it has already raised in capital.

“The MENA market dynamics make BNPL more relevant compared to developed markets where players continue to face challenges,” Tabby said in a press statement.

The main difference between BNPL and credit cards is that consumers only pay late fees if they fall behind on their repayments. The operators mainly make money by charging the vendors a fee.

Retail comfort

At a time of rising inflation, BNPL is increasingly popular with retailers.

“We are also partnering with existing BNPL players in and outside the region. We have done a number of proof-of-concepts,” Alain Bejjani, CEO of the Majid Al Futtaim Group – which owns and operates 29 shopping malls across the Middle East, Africa and Asia – told delegates at a conference in June.

“People love the product. We are seeing an uptake in consumption. People are happy to use it,” he added.

But while consumers may be happy to split their purchase into multiple repayments, the schemes have invoked concern from financial advisors.

“My concern is that it encourages people to get into debt, and to buy things that they cannot afford,” said Keren Bobker, a Dubai-based independent financial advisor and senior partner at Holborn Assets.

“Given the focus in the Middle East of ‘keeping up with the Jones’, while BNPL schemes are marginally better than building up credit card debt, I do not encourage them.”

Credit worthy

Tamara’s Alsukhan refuted claims that it gets his customers into a lot of debt. “BNPL is a service, not a product. You find me only when you need to buy something, and usually that is very small tickets. 

“So, our average outstanding [amount] on any customer, at any point, is hovering around $100. It’s not really a significant amount at all,” he said, adding that their late fees are also capped at 25 percent of the total amount due.

He also claimed that the benefits are also more than just shopping convenience, BNPL services have become popular very quickly because they have tapped into an underserved market of young users who don’t have many alternative means of obtaining credit.

He said the majority of Tamara users are aged in their mid-twenties, recent graduates and often find it difficult to access the funds to buy the things they want.

“The end consumers are underserved when it comes to credit products, especially in Saudi. Most young people, banks rarely want to touch private sector employees, they are not all treated well by the Saudi banks,” Alsukhan claimed.

“We’re not extending credit. We’re just giving access to credit because it’s not there. Most of our customers, 80 plus percent of our customers, are debit card holders,” he said.