Dubai: As gold prices keep hitting $2,000 an ounce plus, UAE jewellery retailers and banks are trying to find ways to extend interest-free ‘buy now pay later’ (BNPL) options beyond the current 3-month period.
If shoppers are allowed to pay off over 6 months, it would give them a bigger cushion against the current steep price of gold. And do so without having to worry about transaction fees on their credit cards.
On most other high-demand product categories, such as smartphones, TVs or home appliances, shoppers usually get up to 6 months as standard, with some schemes even allowing payment over 12 months.
Gold prices are climbing again, currently at $2,036 an ounce, while the UAE rate is Dh228.5 a gram for 22K compared to Dh222.5 yesterday. And just under two weeks ago, the UAE gold rate had soared to Dh233.5 after international bullion prices hit a new record at $2,100 levels.
These prices levels are forcing potential shoppers to postpone purchases, or limit the size of their buys. If they are paying using credit cards, the cost to the consumer will be even higher given how transaction fees have shot up over the recent past.
The typical gold or diamond jewellery purchase is done using credit cards (or through exchanges). Retailers feel buy now pay later schemes will start getting popular as shoppers try to bring down what they have to pay as transaction fees on credit card payments.
“A rise like the Dh6 a gram we had in just 24 hours will force many shoppers to delay or reduce the size of what they planned to buy,” said a gold retailer. “This is also the season of wedding related jewellery purchases, and the $2,000 plus levels are really impacting shoppers.
“What buy now pay layer options do is provide interest-free payment options. Shoppers find that getting only 3 months is not enough in this high price situation.”
Can this be extended to 6 months or more?
How BNPL works is that the retailer has an arrangement with the bank to take care of the transaction fees, so that the shopper doesn’t have to.
But on gold jewellery sales, there is an inbuilt problem. “For one, gold prices fluctuate on a day-to-day or week-to-week basis, unlike, say, the price of an iPhone,” said Abdul Salam K.P., Vice-Chairman of Malabar Group, and one of the biggest names in the UAE jewellery space.
“The second reason is that margins on gold jewellery are typically 5-10 per cent, because most retailers have already brought down their making charges in response to high gold rates. By paying the interest cost on BNPL deals for longer, jewelers’ margins will be hurt further.
“In comparison, smartphones and appliances carry double-digit margins, and that leaves retailers enough flexibility to offer extended BNPL schemes.
“So, banks should try and work out a way to offer jewellery retailers and shoppers an extended 6-month payment option. They could reduce what they charge us as interest.”