The fintech industry has witnessed a significant transformation with the emergence of ‘Buy Now Pay Later (BNPL)’, a form of short-term financing that enables consumers to make immediate purchases and settle payments over a predetermined period of time. The BNPL market is rapidly surging in regions like the UAE and India, appealing to tech-savvy younger generations who prioritise financial flexibility.
Conventional BNPL involves a 20-25% down payment, followed by interest-free instalments over weeks or months. However, each BNPL program comes with distinct prerequisites that patrons must fulfil. In recent years, the landscape has shifted from catering solely to a specialised consumer segment to emerging as one of the foremost payment mechanisms, fuelled by digitalization, e-commerce expansion, credit card rate hikes, and popularity among younger demographics.
While the concept of instalment payments is nothing new, the currently ongoing digital age has breathed a new life into it. Now, instalment payments are available for all products irrespective of size, both offline and online. According to Juniper research1, BNPL payments are expected to make up nearly 24% of global ecommerce transactions by 2026, a significant increase from just 9% in 2021. Insider intelligence predicts2 that nearly 60% of Gen-Z and 53% of millennials will make BNPL payments by 2026, in the US.
The global BNPL market3 was valued at $6.13 billion in 2022 and is expected to grow at a CAGR of just over 26% from 2023 to 2030. In terms of payment transaction value, the BNPL transaction4 hit $200 billion in 2022.
In the UAE, the BPNL has experienced remarkable growth, propelled by the increased penetration of ecommerce, in the entire MENA region, thus warranting close attention from both startups and investors. According to a report5 from Euromonitor International and Dubai e-commerce zone EZDubai, the total market size for e-commerce in the MENA region was valued at $31.7 billion in 2021 and is expected to reach $49 billion by 2025. BNLP payment adoption in the UAE is expected to grow at a CAGR of 12.3% between 2023 and 2028, with merchandise value anticipated to increase from over $2 billion to over $4.5 billion. In the year 2022, nearly 40% of consumers6 in the UAE had used BNPL services.
The escalation of credit card rates in the region, particularly in 2023, is further propelling consumers towards BNPL, with the monthly average interest rate for credit cards in the UAE ranging from 2.5 to 3%, resulting in an annual interest rate of around 30 to 36 %, and potential yearly increases of up to 50 basis points, as indicated by experts. Consumers’ readiness to delay payments extends beyond major acquisitions like electronics, prompting industry leaders like Tabby, Tamara, and Cashew who collaborate with various sectors. In the UAE, BNPL is anticipated to expand into areas like travel, education, insurance, and healthcare in the coming years.UAE BNPL players are now actually expanding their services outside the country into other countries in the region. Tabby for example expanded operations into Egypt, in late 2022 as the middle eastern region provides a market of over 2 million active shoppers. India, too, is witnessing a rapidly expanding BNPL market, driven by significant demand from tier 2 and tier 3 cities for both offline and online purchases. Between 2023 and 2028, the Indian BNPL segment is expected to grow7 at a CAGR of 12.2%, with merchandise value projected to rise from $11.6 billion in 2022 to over $25 billion in 2028. However, regulatory interventions by the Reserve Bank of India in response to the increasing reports of irregularities have impacted BNPL operations in the country. Despite this, leading players like LazyPay, ZestMoney, and KreditBee continue to experience high demand.
Indian startups could find it advantageous to expand into the UAE due to its favourable regulatory climate. Notably, the Dubai Financial Services Authority (DFSA) does not oversee BNPL providers, aligning with the policy that DFSA-regulated firms cannot extend credit to retail clients within the Dubai International Financial Centre (DIFC). For instance, Indian fintech startup Cashfree introduced BNPL Plus to enhance online payments for D2C and has successfully extended its offerings to the UAE.
A novel trend stemming from ‘buy now pay later’ is ‘save now buy later’ (SNBL). As the name suggests SNBL entails saving to facilitate purchases in the future. Sav Money, a UAE based SNBL player, offers several ways for consumers to save; including allocating a %age of income into savings, automatic savings with each purchase, and weekly contributions to your savings account, and more.
Mithil Ajmera, Co-founder and COO, Sav spoke to the Economic Times about the distinctions between SNBL and BNPL ecosystem’s and its advantages for both the merchants and users. He highlighted, “We are the first SNBL in the region. We are trying to create an ecosystem and expanding soon to Saudi and other GCC countries. Our impact lies in aiding users to reduce their debt by helping them plan their purchases.”
Ajmera compared SNBL’s effect on brands to BNPL, stating that while BNPL assists a small %age of likely buyers (1-2%), SNBL targets the majority (98-99% ) not yet ready to convert. SNBL empowers users to save for future purchases, offering mutual value exchange with brands.
Sav gives brands the opportunity to give their customers who are in the discovery phase and who are not ready to buy a product the options to start saving for it, and in return the brand gives the customer value back. “Brands are anyway spending 20% of marketing and acquiring, so instead of giving that money to Apple, meta or Google, they can give it back to the customer as rewards, who could then go on to be loyalists.”
From a user standpoint, Ajmera characterised BNPL as convenient credit, nudging consumers to pay in a month. SNBL on the other hand reduces debt, guiding planned purchases for long-term financial goals. Ajmera noted that SNBL suits high-ticket products like jewellery, electronics, and travel, while it’s less relevant for fashion or food items.
Ajmera reported SNBL has a huge traction in the UAE, with Sav already engaged with two brands and integration planned with 11 more. Talking about the global outlook he said “SNBL is going to be a fantastic use case in places where banks are giving lower interest for savings. If banks are giving 1% or 1.5% interest, in the UAE it is .5% to 1%, (in the last 3-4 months it’s gone up). But the users are not seeing much value keeping the money in the banks, hence they would spend it in any way possible. This would also work well in countries like the US and Germany. India might see challenges, as in India banks give 6-7% and FD’s you get 8%.”
The rise of BNPL and SNPL in fintech has redefined consumer payment and saving approaches, notably appealing to the tech-savvy youth in regions like the UAE and India. These trends, with e-commerce transformation potential, bring convenience and transformative shopping habits, but responsible financial decisions and evolving regulations remain pivotal.
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