Buy now, pay later (BNPL) has quickly established itself as a popular go-to financing option for online shoppers as well as retailers, with the latter benefiting from its omnichannel application to buoy sales and acquire and maintain customers who may not be able to cover the costs of an entire purchase. In fact, retailers themselves use BNPL as a marketing tool, directing their customers toward the providers of such services. But some retailers are beginning to resent BNPL, viewing them in a similar vein to food delivery aggregators that charge high commission rates that eat into their revenues.
“In the region, anywhere from 25 to 32 to 40 per cent of online shoppers have already used BNPL, and that figure is growing. It has definitely gained a lot of adoption across the online shopping population," says Hosam Araby, co-founder and CEO of UAE-based BNPL provider Tabby.
The growth in BNPL mirrors the acceleration in the e-commerce space across Mena, where the overall market size is worth $37 billion, according to a report by EZDubai, which also expects that the e-commerce market will be valued at $57 billion in 2026, registering a compounded annual growth rate (CAGR) of 11 per cent over the period of 2022–2026.
As per the report, both the UAE and Saudi Arabia continue to remain leaders in the e-commerce sector across the Arab world. Subsequently, these two markets have the largest share of BNPL e-commerce transactions, largely dominated by two main players: Tabby and Saudi Arabia-based Tamara, which have amassed over $740 million and $365 million, respectively in funding.
Thanks to its growing population coupled with its expanding e-commerce market share, Saudi Arabia remains the target market for BNPL providers. For Tabby, the Saudi market is its biggest market now.
“This mimics the share of e-commerce in the region, which is largely skewed towards the Saudi market. That's how we see our share of volumes accordingly split,” adds Arab.
Revenue higher than costs
BNPLs continue to take hold in different segments of retail, with merchants incorporating them into both online and offline channels as a means to attract customers increasingly challenged by rising levels of inflation.
“Prices will tick up everywhere, and companies facilitating payments and offering instalments across the board will proliferate. This has been deeply instilled in consumer behaviour. Using fintech products like BNPL and smart wallets by banks is now an integral part of the culture here in Saudi Arabia. There’s no changing that fact,” says Mohamed Abuzaid, marketing manager at ReeQ, a Saudi Arabia-based producer of wild honey, a third of whose revenues now come via BNPL.
Similarly, Abdullah Alsweed, founder of Melen, an e-commerce platform for home textiles, says that the company now draws 45 per cent of its revenues from BNPL, adding that they are also utilised in the company’s in-store operations.
Alsweed predicts that the market will continue its upward trajectory for each provider as a result of the increased competition, arguing that BNPL is still far from saturation point and that the demand for such services across diverse sectors remains high.
“The customers will keep using BNPLs so the market is set to grow, but the market share for each provider will shrink, so there is no saturation happening anytime soon,” he says.
As a means to monetise their customer base, BNPLs are developing new products to increase customer-merchant engagement, including cashback and in-app advertising (IAA). As a beneficiary, Alsweed says that his company has been making use of the latter service. But in terms of returns on ad spend, he further believes that the advertising campaigns on social media platforms such as TikTok and Snapchat outperform those by BNPL providers.
Ameen Mahfouz, founder of Speero, a Saudi Arabia-based marketplace for automotive spare parts, says that using BNPL has helped increase sales and conversion rates for his startup.
“The level of convenience offered by BNPLs has been now ‘familiarised’ among both merchants and customers. I don’t think retailers will stop using them unless they face challenges in terms of cash resettlement or in the case of commissions getting higher, which results in lesser profits for them,” he adds.
Generally, BNPLs do not charge consumers a fee for their service, instead they charge the merchants a commission rate that ranges from 2-9 per cent, depending on each industry, profit margins, and accompanying risk factors. Industries like fashion usually have higher profit margins than electronics for example, and so retailers in the electronics space tend to charge their customers additional fees on products sold via BNPL to regain lost revenue from the commission fees.
To avoid paying these commissions, some retailers have started offering their own version of BNPL to keep customers within their own ecosystem instead of dealing with them through a third party. Still, there are regulatory, technical, and credit-related challenges to circumvent. So, only large retailers with a high volume of customers have the capability to build their own BNPL offering.
As the adoption of BNPL increases across multiple industries, BNPL providers might have challenges determining commissions that are mutually beneficial to retailers and BNPL service providers in each industry they are making inroads into. Against that background, an adjustment of market pricing is also likely to happen.
Inflationary pressures and rising interest rates will likely weaken consumer purchasing power, leading to a slowdown in discretionary spending and hence an overall drop in the number of BNPL transactions as well. One merchant, who wishes to remain unnamed, argues that increased reliance on BNPL will shape up to be a “detrimental” behaviour for consumers with no strong financial education or background, exceeding their budget limit and adversely impacting their financial wellbeing.
“Consumers are not really well educated on managing their finances; that is the case for our market and global ones. And what happens is that people don't realise that there is a cost associated with using BNPLs, called late-payment fees. They are not showing up as interest costs, effectively penalising consumers for not having a very disciplined approach to managing the payments, which they don't have as they're not really educated on it,” they add.
As the market continues to boast several BNPL products, retailers might be forced to partner with many of them so as to take advantage of greater transaction volumes, which can cause confusion for both retailers and consumers. In the long run, using BNPLs might chip away at the profit margin that retailers enjoy as their businesses grow.
“If 100 per cent of the retailers are offering BNPL, it's a zero-sum game. So if you are [as a retailer] an early adopter, then it has a positive impact because you increase your revenue, you increase the average order value, and so on,” adds the anonymous source. “But over time, that effect disappears. And the only part that you keep is the commission that you're paying to the buyer, which is not valid. So net-net overtime is just negative for retailers.”