Buy now, pay later players tackle credit conundrum in Mideast’s Gulf

As the pandemic drives a shift in consumer spending online, Financial technology start-ups in Saudi Arabia and the United Arab Emirates offering online short-term credit. Consumers have traditionally been sceptical of paying for goods before getting them. And in such a region the digital buy now, pay later (BNPL) purchasing is relatively a new beginning.

But the take-up has far exceeded initial expectations, says Saudi Arabian-based Tamara and UAE’s Spotii, Tabby and Postpay. Tamara last month raised $110 million in debt and equity. This is a large amount for an early-stage Middle East start-up. Australia’s second biggest BNPL player Zip said it was buying the rest of the shares in Spotii. Tabby has raised over $30 million. This includes the funding from Abu Dhabi state fund Mubadala. Tabby Co-Founder and Chief Executive Hosam Arab told the reporters that they are constantly re-forecasting their numbers. This is just because they constantly get surprised by the consumer adoption.

No independent data is available on the Middle East BNPL market. This also includes Shahry in Egypt. BNPL is marketed as an alternative to credit cards in the United States, Australia and Europe. This pandemic is the main reason for the expansion of this service among the people. According to a 2018 report by British security firm G4S, in the Gulf, BNPL companies present themselves as an alternative to cash on delivery. In many Middle East countries, the cash on delivery was the most common payment method adopted by the people for online purchases.

Anil Malhotra, chief marketing officer of digital payments business Bango, said that a cultural challenge for BNPL in the Gulf was to make sure it doesn’t look or smell like credit. Islamic customs prohibit charging interests on loans. This is the reason, which has deterred some Middle East consumers from using credit cards. Chief Executive Rayan Fadul said that half of all purchases are paid with card, while cash on delivery accounts for 40% of all online transactions with BNPL making up 10%. He also believes that BNPL is still new to the region’s consumers who are wary of using a product they don’t yet fully understand. May be explaining how easy it is and to see other people talk about it will help others to know it better.