The Rise of Buy Now, Pay Later: Transforming Consumer Habits in the UAE

In the rapidly evolving landscape of retail and e-commerce, the Buy Now, Pay Later (BNPL) trend is revolutionizing the way consumers pay for goods and services. The United Arab Emirates (UAE), a hub of innovation and economic growth, has embraced this financial model, reshaping the consumer experience and stimulating economic activity in the region. The evolution of BNPL in the UAE has seen the emergence of various providers offering flexible payment options to consumers, such as Postpay, Spotii, Tabby, Tamara, with traditional banks now also offering BNPL products.

Understanding Buy Now, Pay Later

Buy Now, Pay Later services allow consumers to make purchases and defer the payment to a later date, breaking down the total cost into smaller, manageable instalments. This flexible payment option has gained popularity in the UAE and beyond due to its convenience, accessibility and transparent fee structure. Traditional barriers to purchasing high-value items have now been overcome, enabling even more people to purchase products and services.

The UAE’s changing BNPL landscape

Several BNPL platforms have emerged in the UAE, catering to diverse consumer needs and preferences. These platforms partner with a wide array of retailers, both online and offline, offering consumers the flexibility to pay for their purchases over a period of time. With the rise of BNPL, consumers no longer need to worry about immediate financial constraints, allowing them to make purchases that align with their lifestyles and aspirations.

According to recent reports, BNPL payments in the UAE have grown by 19.6% on an annual basis to reach US$2.6 billion in 2023. Medium- to long-term BNPL growth in the UAE remains strong, with adoption expected to grow steadily, recording a CAGR (Compound Annual Growth Rate) of 12.3% between 2023-2028, and BNPL Gross Merchandise Value in the UAE is projected to increase from US$2.2 billion in 2022 to reach US$4.7 billion by 2028.

What’s driving this growth?

This growth can likely be attributed to the increasing adoption of digital payment solutions and a shift in consumer preferences toward more flexible payments. But, a number of other shifts in consumer sentiment are contributing to the high-level of adoption of BNPL offerings in the UAE, compared to some of the more traditional payment mechanisms like credit cards.

These consumer shifts include:

1. Increased purchasing power​​​​
   • BNPL has empowered consumers in the UAE to make purchases that might have been financially challenging under traditional payment methods.
   • Users often leverage BNPL for high-value items, luxury goods, and experiences, taking advantage of the ability to spread payments out over time.
2. Spending flexibility
   • BNPL users appreciate being able to split payments into smaller, more manageable instalments.
   • This flexibility allows consumers to align their spending with their income schedules and manage their budgets more effectively.
3. Preference for zero or low-interest and fee plans
   • Users often gravitate towards BNPL providers offering zero or low-interest instalment plans, making this payment method an attractive alternative to traditional credit cards that have potentially higher interest rates.
   • With many BNPL plans also ditching annual fees, it’s a cost-effective option for customers.
4. Quick and seamless transactions
   • BNPL users appreciate the straightforward application processes and instant approval mechanisms offered by many providers in the UAE.
   • Enhanced simplicity often supports a more inclusive, broader consumer segment that previously struggled to access traditional credit facilities.
5. Financial planning and responsibility
   • While enjoying the benefits of BNPL, users in the UAE are becoming more conscious of responsible financial management.
   • There is an increasing awareness of the need to understand the terms and conditions associated with BNPL services to avoid potential pitfalls such as accumulating debt.
6. Embracing digital payments
   • The adoption of BNPL aligns with the broader UAE trend of embracing the convenience of digital payment solutions.
   • A younger demographic are more receptive to digital innovations, digital transactions and a more modern approach to personal finance.
7. Monitoring and budgeting
   • BNPL users often monitor their spending and budget more consciously, given the structured nature of instalment plans.
   • Heightened awareness contributes to a more controlled approach to personal finances.
8. Influence of promotions and partnerships
   • Promotions, discounts, and partnerships between BNPL providers and retailers play a critical role in shaping user behaviour.
   • Users may be influenced by exclusive offers tied to specific BNPL plans.

Understanding these consumer habits provides insights into how the BNPL phenomenon is influencing the purchasing behaviour and financial decisions of individuals in the UAE. It also highlights the need for a balanced approach, encouraging responsible use of BNPL services.

The challenges of BNPL

BNPL products are no ‘silver bullet’ for solving for the problems of traditional credit facilities. Further, customers must be aware of the challenges they may face in the BNPL market. These include:

• Risk of overspending --The convenience of BNPL may lead to the temptation to overspend, especially if users fail to carefully manage their budgets and payment plans.
• Accumulation of debt -- If not used responsibly, BNPL services can lead to the accumulation of debt. Users should avoid falling into a cycle of debt that could impact their financial wellbeing.
• Limited regulation -- The relatively recent emergence of BNPL services in the UAE mean that regulatory frameworks are still evolving, with the CBUAE only recently releasing new regulations for the facilitation of BNPL providers. Limited regulation could pose challenges in terms of consumer protection and fair business practices.
• Potential impact on credit scores -- While BNPL transactions typically do not involve traditional credit checks, defaulting on payments could have implications for users' credit scores and financial standing.
• Varied fee structures -- Users need to be aware of the fee structures associated with different BNPL services, as some providers may charge fees for late payments or changes to the payment schedule.
• Dependency on digital infrastructure -- BNPL services rely heavily on digital infrastructure. Any disruption or issues with online platforms could affect the user experience and timely payments.
• Educational requirements -- Users need to know about BNPL terms and conditions in order to make informed decisions and avoid potential pitfalls.
• Potential market saturation -- As BNPL services become more popular, there is a risk of market saturation and increased competition, which could impact the profitability and sustainability of some providers.

Regulation and the future outlook

Recognizing the growing influence of BNPL services, regulatory authorities in the UAE have begun implementing measures to ensure consumer protection and financial stability. Striking a balance between fostering financial innovation and safeguarding consumer interests is crucial for the sustainable growth of this industry. As the BNPL market continues to mature, collaboration between regulators, financial institutions and BNPL providers will be pivotal in shaping the future of consumer finance in the UAE.

Buy Now, Pay Later is already reshaping the retail landscape in the UAE, offering consumers unparalleled convenience and flexibility. But, concerns about debt and regulatory scrutiny may influence the industry’s trajectory. It’s essential to monitor how the market evolves to understand its long-term impact. Moreover, consumers must ensure they stay well-informed in order to make responsible financial decisions.

Further improvements in onboarding, lending capabilities and adoption of behavioural scoring, backed by data analytics that highlight consumer spending patterns will result in more consistent, low-risk payments. Traditional providers should take note of these new, customer-centric BNPL capabilities to learn and grow before they are overtaken by new FinTechs.