Stock Online shopping
A handful of fintech companies with eye-catching names are lining up to offer easier payment options. The 'Buy Now Pay Later' movement is trending in the UAE. Image Credit: Shutterstock

Dubai: UAE shoppers need no longer worry about being short on cash the next time they want to pick up a smartphone or piece of furniture. Nor should they bother about having to shell out more on fat interest charges if they were to use a credit.

No, they can ‘buy now’ and ‘pay later’… and not worry about interest charges as well. Yes, the ‘buy now pay later’ trend is picking up in the UAE and Saudi Arabia as more fintech companies align with retailers to make shopping just that bit easier in these cost-conscious times.

Apart from the surge in online shopping, the BNPL movement – it now merits an acronym - is the biggest retail trend that the local retail sector is witness to since the onset of COVID-19. And BNPL hits the sweet spot.

“It is meant for a cost-conscious consumer who wants to buy something and doesn’t want to face credit card fees and instalments,” said Ammar Afif, founder of cashew. “Currently, payments done on BNPL basis can be paid off in a year at the most.

“From a merchant’s perspective who is looking to sell more and have loyal customers, this is giving them choice to buy what they want today and pay for it later. The consumer is getting more purchasing power and the merchant increases the average order value.”

Smaller ticket sizes

That’s the main point – Such purchases tend to average in the Dh5,000-Dh10,000 range, and extend into mid Dh30,000’s, if, for instance, someone wants to get a new set of furniture.

“If you look at it, it’s an alternative to credit cards, especially for millennials and Gen-Z users as they have trouble getting access to credit,” said Afif. “If you are graduating as a student or you have just relocated and want to buy furniture and don’t have credit history, that’s where where we come in.

“It is an alternative to credit cards...”

Amaar Afif of cashew
Amaar Afif of cashew reckons the market environment is ripe for Buy Now Pay Later transactions to soar. The concept has been around for some time in the US and elsewhere, but is now finding traction with UAE and Gulf shoppers. Image Credit: Gulf News

Definitely a win-win

For retailers, if by offering ‘buy now pay later’ schemes in tandem with fintech companies helps bring back shoppers, then it’s all to the good. The Al-Futtaim Group was one of the early adopters among local retailers, aligning with tabby to launch its buying options in summer.

“Early indications show customers are willing to spend more when using the service, ranging from 5-20 per cent more than other payment types,” said Regis Schultz, President of Al-Futtaim Retail.

It was introduced on its online shopping portal and also at its watches and jewellery platform. Since then, Al-Futtaim Group brought the service to some of its brick-and-mortar stores, such as Toys R Us and ACE Hardware and “with plans to launch with other Group brands in retail and automotive”.

In fact, Al-Futtaim has been offering BNPL options at its IKEA store in Egypt via a partnership with ValU for three years. “The Group is also planning to launch BNPL in Singapore and Saudi Arabia before the end of the year to improve the shopping experience for consumers,” Schultz added.

A reflection of the times

More retail groups are rolling out BNPL options, in collaboration with their chosen fintech partner. Among fintech companies, is there now a need to have exclusive alliances with retailers and their brands?

“Every retailer that we approached is interested - and we don’t ask for exclusivity,” said Afif. “They can choose more than one BNPL provider. The choice then goes back to the end customer and which BNPL provider they prefer based on the quality of the service and, of course, the financial product offering.”

How does BNPL work?

It’s pretty straight forward for someone looking at it from the outside. As far as shoppers are concerned, it’s just like a credit card deal… but without the interest charges.

The customer needs to have a credit or debit card on file and the purchase price can be split over 3- 6 months at zero cost. “The credit card on file offers some security to us,” said Afif. “But if the customer misses a payment or for some reason the credit/debit card defaults, cashew will charge a late payment fee and eventually take on the risk of defaulting.

“For this offering we are getting a small margin from the retailer. The fees that a retailer would typically pay to a PSP (payment service provider) will be paid to us instead, and we will split that fee with our acquiring bank.

“We want to promote responsible spending as well. All the fees will be displayed upfront and there are no hidden charges whatsoever.”

It also has the full sign in from banks, because BNPL creates spending opportunities that banks can lend for, with fintech companies acting as the catalyst.

“We provide the technology, the platform and the customer acquisition while banks provide the knowhow, experience, and lending ability,” said Afif. “Our goal is not to fully replace the bank or their products but to accentuate their lending offering.”

More players, more markets

The pandemic months only slowed down the geographical expansion, and the leading BNPL players are rushing to fill the vacuum. Tabby has been fortified by a $9 million funding round in June and also launched in Saudi Arabia.

Another entrant is Spotii, which launched earlier this year in the Kingdom and allows shoppers to make their payments in four instalments at zero interest. The partner merchants receive the full payments upfront from the fintech company.

“We believe Spotii helps empower customers to enjoy shopping more, without worrying about excessive costs or hidden fees,” said Ziyaad Ahmed, co-founder.

Tabby has just seal a deal with Visa for the latter FinTech programme. The intent is to leverage Visa's global reach and security, according to tabby's founder Hosam Arab. Image Credit: Gulf News Archive

Even card companies are joining in

Interestingly, tabby now has a partnership running with Visa, with the latter’s ‘FinTech Fast Track’ programme. Acceptance into this “allows tabby to more easily leverage the global reach, capabilities and security Visa offers.”

But aren’t fintech companies meant to replace credit card companies in consumer transactions?

That’s definitely not how Hosam Arab, co-founder of tabby and also one of the key players behind the fashion portal Namshi, sees it. "On the contrary, our interests are very much aligned as both tabby and Visa look to shift consumer spend away from cash and towards digital payment methods. Given the clear value we provide in offering customers interest-free instalments for their purchases, these customers are increasingly reducing their dependence on cash-on-delivery and becoming more comfortable using their cards to make their online purchases."

We want to empower our customers to easily buy what they want, when they want, while remaining in control of their finances

- Hosam Arab of tabby

Consumers have the choice

As far as UAE shoppers go, these partnerships are not their focus. What they will be focussed on is whether they have the budget to make the payments on their next purchase. With the gifting and promotions season on, that is what’s grabbing their attention.

If they can make those buys now and pay later, then they won’t have any quibbles. The force is truly behind BNPL…