The buy now, pay later (BNPL) mode of payment is witnessing a surge in the UAE and Saudi Arabia, driven by the region’s digital transformation and consumer demand for flexible financing options.
Data from Statista reveals the UAE’s rapid transition to a cashless society, with credit cards nearly doubling in market share for point-of-sale payments since 2019, and mobile wallets gaining massive popularity in recent years.
The e-wallet klip, part of a nationwide initiative to replace physical cash with digital payments, is expected to dominate the mobile wallets market in the UAE by 2025. But why is this payment mode growing in popularity? Here’s what experts told Arabian Business.
Why is Buy Now, Pay Later (BNPL) gaining popularity in UAE, Saudi Arabia?
“BNPL schemes make it easier for people to access goods and services that they might not have immediate cash available for. This is particularly appealing in consumer-driven economies like those in the UAE and Saudi Arabia. The payments are usually interest-free or considered low interest and so are viewed as a smarter option than putting the purchases on credit cards which carry high interest rates,” Carol Glynn, a personal finance expert told Arabian Business.
BNPL allows consumers to spread payments over an extended period, typically up to 6 or 12 months, without incurring the high-interest costs associated with credit cards, Glynn said, adding that this aids cash flow management, particularly during periods of economic uncertainty.
“During uncertain economic times, consumers may prefer to keep cash on hand rather than spend it all at once. BNPL can boost consumer confidence and spending by reducing the immediate financial burden,” Glynn said.
However, Glynn cautions the potential drawbacks of BNPL if not used responsibly.
“It is concerning when it causes consumers to make more purchases than they can afford, leading to financial stress or debt. The UAE and Saudi Arabia are regions with high consumer spending so it may increase the risk of overspending,” she said.
When a significant portion of the population is burdened with debt, consumer spending tends to decline as more income goes towards debt repayment rather than consumption.
This reduced spending can lead to lower business revenues, potential cost-cutting measures, and job losses, further exacerbating economic contraction.
BNPL more appealing to tech-savvy, young consumers
Mike Coady, a UAE-based financial advisor with over 20 years of experience in the region, attributes BNPL’s rising popularity to the UAE’s push towards a less cash-dependent society.
“As the likes of the UAE strive towards less cash-dependent societies, BNPL fits perfectly into place, offering consumers a modern, flexible payment solution.”
Coady notes BNPL’s particular appeal among younger, tech-savvy consumers seeking instant purchase experiences beyond their current budget capacity.
According to data by LexisNexis Risk Solutions, a data analytics provider for organisations, BNPL users are significantly younger than bank card and retail card customers.
The contrast between BNPL users and retail card users is striking, given retail card’s status as the most widespread form of retail credit in the United States alone over the past several decades. BNPL applicants have more than double the likelihood of being under 35, whereas nearly half of BNPL users are 36 or older.
“It’s especially appealing to the younger and early careers demographic, who are tech-savvy and seek that instant, seamless purchase experience outside of their current budget capacity.”
However, he also warned of the potential risks associated with a lack of financial oversight and discipline.
“Without diligent financial oversight, consumers may find themselves juggling multiple payments across different platforms, inadvertently leading to a scenario where the total owed is greater than their future repayment capacity.”
Coady likens the situation to the credit card boom but with a digital twist, requiring a new level of financial literacy and self-control. “It’s equivalent to the credit card boom, but with a digital twist, requiring a new level of financial literacy and self-control.”
Both experts stress the importance of consumer education and regulatory frameworks to mitigate risks and ensure transparency regarding BNPL terms, fees, and potential impact on credit scores.
“I would strongly encourage individuals to only make purchases with BNPL that fits within your monthly budget and that you have a plan and the means to make all payments on time. Be mindful not to use BNPL as a means to justify impulse purchases that aren’t financially prudent or needed,” Glynn said.
BNPL should be used for ‘necessary’ purchases, say experts
While BNPL penetration in the UAE’s domestic e-commerce payments was below the global average in 2022, the segment is projected to continue growing.
Emirati BNPL providers such as PostPay, Cashew, Spotii, and Tabby compete with regional players like Saudi Arabia’s Tamara, as well as global giants like Klarna, which was offered as a BNPL solution on over 7 percent of websites worldwide.
“Its potential for positive impact is significant when used correctly and within the framework of an informed financial strategy. However, the pitfalls of misuse can lead to financial challenges that may outweigh the initial benefits,” Coady said.
Glynn echoed this sentiment, recommending BNPL for necessary purchases like appliances or important services that are needed immediately but might not be affordable upfront.
She also suggests BNPL can be useful for disciplined consumers who have cash saved in an interest-earning account, allowing them to delay payments on a purchase while their savings continue to earn interest.
“Whether BNPL is an advantage or disadvantage in the long run largely depends on individual financial discipline and the specific terms of the BNPL plan they use. It can be advantageous if used wisely for necessary purchases and managed within one’s budget. However, it can become a disadvantage and a financial trap if it encourages overspending or becomes a substitute for emergency savings,” she said.
As BNPL continues to reshape the region’s financial landscape, both experts emphasise the responsibility to foster a culture of financial prudence.
“Providers and regulators should work together to offer not just innovative solutions but also education. As we embrace these new financial tools, let’s also champion the cause of financial literacy to ensure they serve our best interests in the long term,” Coady concluded.
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