Stock - Dubai Mall / Shopping
Retailers in the UAE are reporting some heavy activity through the Eid holidays - and cashback promotions are helping them win over shoppers. Image Credit: Virendra Saklani/Gulf News

Dubai: Is ‘cashback’ making a sort of comeback in the UAE’s retail space?

Through Ramadan and Eid, cashback schemes from retailers and other service providers have seen significant interest from shoppers compared with the traditional discounts. According to retailers, when consumers are getting more conscious about their spending, the impression that cashback offer – of money being returned in some way – better value is why they are proving quite popular these days.

“In comparison, many consumers still have mixed feelings about discounts,” said a retailer. “In the present, money saved – and returned – is finding quite a lot of interest from consumers rather than money saved, which is what discounts offer.”

Stock - Cashback
Cashback offers emerge as retailer and shopper favourite this Ramadan and Eid as shoppers want to be convinced about the promotions.

Every retailer seem to have some cashback schemes running, whether that’s a car purchase, gold or diamond jewellery, or even data bundles. Jacky’s Electronics is pushing hard with a cash return of ‘up to Dh1,000’ for Samsung purchase, while Emirates NBD is running a 1 per cent cashback, of up to Dh1,500, when booking an instalment plan for Dh5,000 or more through an app. The point is, across industry verticals, cashback is king.

A discount by another name?

According to Uday Rathod, CEO of ZNAP, a consumer reward portal, “Cashback represents future discounts. Since the cashback accumulated can only be spent at the same merchant, it encourages users repeat visits. With a higher probability of a repeat customer, merchants are willing to offer a higher percentage of cashback than (one-off) discounts. Hence, cashback proves to be a win-win for customer as well as merchant.”

Retail industry sources say that where repeat visits happen, the retailer has to spend less on winning that consumer again. This, ideally, would reduce marketing costs too. (Typically, cashbacks are only provided via credit cards as a part of a promotion to customers who are eligible or who can afford the same based on their monthly income range.)

What of BNPL?

After last year’s dream run, Buy Now Pay Later schemes, it seemed, was the only customer-winning tool that local retailers needed. Whether buying online or offline, the BNPL portals were there to make it easier to do the transaction - and without the need to pay an interest rate like one would on a credit card transaction.

By now, all of the big-name retailers and ecommerce platforms are offering buy now pay later schemes. But did these click as well as last year? Or were cash back offers more interesting?

Who should be doing BNPL?

Shoppers with poor credit histories or maxed-out cards prefer these services because they have a better chance of approval. The ease of BNPL processes makes quick converts out of its users.

Stock - BNPL
Will 2022 be another bumper year for Buy Now Pay Later schemes? Or will shoppers opt for cashback or straight discounts?

It is also easy to finance a purchase that many shoppers sign up without really knowing what they’re getting into. Credit bureaus are aware of consumer demand for ‘buy now, pay later’ credit and its substantial growth over 2020 and 2021.

But Rajat Asthana, Chief Marketing Officer at Eros Group, says BNPL serves multiple purposes. For customers tired of fees and a general lack of transparency or simplicity in payment options, BNPL allows:

  • Instant gratification as consumer can shop and receive their items as normal - and then pay later;
  • Pay later seamlessly with best-in-class UX (user experience) and with instant approval decisions;
  • Never pay more than what they are buying, as BNPL is always at 0 per cent interest and zero fees;
  • Checkout with a single OTP verification for all return customers across all retail merchants.

Where retailers benefit is from:

  • A boost in conversion of between 20-35 per cent without eroding margins through discount sales;
  • An increase in average order values of up to 55 per cent without increasing price points or upselling;
  • Lower return rates in a region where retailers struggle with high return rates and affiliated costs linked to cash-on-delivery;
  • Get paid upfront with zero risk as retailer payments are settled immediately, less the processing fees;
  • Ease of conversion of purchase to instalments for any consumer. Any purchase made by any debit or credit card can be instantly and easily converted to a instalment plan.

Whether shoppers opt for cashback or BNPL, one theme is constant - they want the ‘real’ deal. ‘Artificial’ discounts will no longer get their interest, and retailers risk losing them if they just stick with 40-50 per cent off schemes. And any payment that involves a higher interest rate element - and these are going to get higher - will be another way to lose their shoppers.

Keep this in mind on BNPL
According to a recent study by Credit Karma, 34 per cent of consumers who used BNPL offers fell behind on one or more payments. Of these, younger shoppers were far more likely to fall behind, with more than half of millennials reporting they missed a payment, compared to just 10 per cent of baby boomers.

The key downside is that late payments can result in fees. The survey also found that those who missed a payment fear their credit score dropped as a result. One in three in that group said their credit score has already been significantly down.

Those penalties may come as a surprise to some consumers, who may lose track of their payments or use more than one BNPL plan. The terms of the providers often differ, with some charging late fees or reporting to credit bureaus, while others don’t.