DUBAI: Fintech startups in Saudi Arabia and the United Arab Emirates offering short-term credit online say they are growing exponentially as the coronavirus pandemic drives up consumer spending online.
Digital Buy Now, Pay Later (BNPL) is relatively new to the region where consumers are traditionally skeptical about paying for goods before they get them.
But Saudi Arabia-based Tamara and UAE Spotii, Tabby and Postpay all say demand has far exceeded initial expectations. And investors are paying attention. Tamara raised $ 110 million in debt and equity last month, a significant amount for a start-up startup in the Middle East.
This week, Zip, Australia’s second largest player in BNPL, said it was buying the rest of the Spotii shares it did not already own for US $ 16 million. Tabby has raised more than $ 30 million, including funding from the Abu Dhabi Mubadala State Fund.
“We have to constantly rethink our numbers just because we’re constantly surprised by consumer adoption,” Tabby co-founder and CEO Hosam Arab told Reuters.
There is no independent data available on the Middle East BNPL market which also includes Shahry in Egypt; all of the companies in the industry are early stage start-ups and many only started operations last year.
In the United States, Australia and Europe, BNPL is marketed as an alternative to credit cards. During the pandemic, as consumers kept their money and looked for other methods of borrowing, the service exploded in popularity.
In the Gulf, BNPL companies are promoting themselves as an alternative to cash on delivery, the most common payment method for online purchases in many Middle Eastern countries, according to a 2018 report from the security company British G4S.
But Anil Malhotra, marketing director for the digital payment firm in Bango, said a cultural challenge for BNPL in the Gulf was to make sure it “doesn’t look or feel like credit.”
Islamic customs prohibit charging interest on loans, which has discouraged some Middle Eastern consumers from using credit cards.
Saudi independent retailer Crate, which featured Tamara on its website last August, found that while those who made purchases from BNPL had become regular users, most customers preferred to pay by card or cash on delivery. .
Half of all purchases are paid by card, while cash on delivery accounts for 40% of all online transactions, with BNPL accounting for 10%, chief executive Rayan Fadul told Reuters.
BNPL is still new to consumers in the region who are reluctant to use a product they do not yet fully understand, he said.
“They would like to see other people talk about it first and maybe explain to them how easy it is.”
The model varies, but BNPL companies typically allow buyers to pay for their purchases in installments over several weeks or months. Gulf vendors do not charge interest and instead earn most of the income by charging fees to traders.
While buyers can be charged hefty fees if they miss a payment, vendors claim 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 because buyers can spread payments over an extended period of time and allow buyers to purchase the products they need.
Because BNPL companies typically make money on merchant commissions and late fees, not interest payments, they bypass the legal definition of credit and credit laws.
But the industry has come under intense scrutiny by UK authorities and elsewhere revising or tightening industry rules, with some regulators saying tech companies offering BNPL should be regulated like regular lenders.
It is unclear how regulators in the Middle East plan to respond. Financial authorities in Saudi Arabia and the United Arab Emirates did not respond to Reuters requests for comment.
“It’s credit and if credit is mismanaged, whether by the lender or the borrower, bad things happen,” Ronit Ghose, global director of banking research at Citi, told Reuters.
Tamara, who is located in Arabia and the United Arab Emirates, claims to have recruited more than 1,000 merchants and that the volume of transactions has increased by 170% per month. Spotii, available in Arabia, United Arab Emirates, Bahrain and Oman, has 650 merchants on its platform and has seen transaction volume increase by 90% on average month-over-month since its launch. last year, according to Zip.
Postpay, Spotii, Tabby and Tamara all say they plan to expand into other markets soon.
As the impact of the pandemic diminishes, investors also see an opportunity for BNPL companies to do more business in cash stores in the Middle East.
“We believe the physical point of sale will play a very big role in the future of BNPL in this part of the world,” said Eslam Darwish, partner of Dubai-based venture capital firm Global Ventures which has invested in Tabby. .
Alshaya Group, a Kuwaiti retailer with franchise rights in the Middle East for companies such as Starbucks and Hennes & Mauritz, plans to roll out post-payment to various online stores after following it this year in the UAE at Footlocker.
“We are certainly pursuing BNPL’s in-store availability for the benefit of customers who sometimes or always prefer physical purchases over digital purchases,” said Chief Digital Officer Paul Morris.
(Reporting by Alexander Cornwell; Editing by Carmel Crimmins)