‘Buy now, pay later’ start-ups tackle consumer spending online in GCC
Financial technology start-ups in Saudi Arabia and the UAE offering online short-term credit say they are enjoying exponential growth as the coronavirus pandemic drives a shift in consumer spending online.
Digital buy now, pay later (BNPL) purchasing is relatively new to the region where consumers have traditionally been sceptical of paying for goods before getting them.
But Saudi Arabian-based Tamara and UAE’s Spotii, Tabby, and Postpay all say the take-up has far exceeded initial expectations. And investors are paying attention. Tamara last month raised $110 million (Dh404 million) in debt and equity, a large amount for an early-stage Middle East start-up.
In the Gulf, BNPL companies present themselves as an alternative to cash on delivery, the most common payment method for online purchases in many Middle East countries, according to a 2018 report by British security firm G4S.
Saudi Arabian independent retailer Crate, which introduced Tamara on its website last August, has found that while those checking out with BNPL had become repeat users, most customers preferred to pay by card or cash on delivery.
Half of all purchases are paid with card, while cash on delivery accounts for 40% of all online transactions with BNPL making up 10%, Chief Executive Rayan Fadul told Reuters.
While shoppers can be charged hefty fees if they miss a payment, providers say they cause less financial burden than credit cards. Users can be suspended if they miss a payment.
They also say they help merchants increase sales as shoppers are able to spread out payments over an extended period and allow shoppers to buy products they need.
As BNPL firms generally make money off merchant commissions and late fees, not interest payments, they sidestep the legal definition of credit – and credit laws.
As the impact of the pandemic diminishes, investors also see an opportunity for BNPL firms to take more business at the shop till in the Middle East.
