Lending 3.0: The Role of Buy Now, Pay Later in Embedded Finance
Buy Now, Pay Later plans have been around for centuries now. Some sources suggest the first industrial-scale offering of Buy Now, Pay Later can be found as early as the 19th century. Despite its age, BNPL has never seriously disrupted other forms of credit such as cards or small loans. However, rapid technological innovations in embedded finance may change that. Propelled by the ease and convenience of e-commerce, Buy Now, Pay Later plans have discovered a vast reservoir of untapped economic potential in recent years.
The Explosive Growth of Buy Now, Pay Later in the UAE
In 2022, BNPL purchases accounted for over 2 billion dollars in revenue in the UAE alone. This figure is only set to grow. The BNPL industry has maintained a steady compounded annual growth rate of nearly 6% since 2015, with this figure being accelerated by the global pandemic. Another possible reason for this explosive growth in the UAE specifically may be found in historical and cultural contexts.
Credit penetration across the UAE is remarkably low compared to other developed nations. Despite a 90% banked population, the UAE only has a credit card penetration of 48%. Over half of the UAE's population does not own a credit card. BNPLs offer a convenient alternative to many of the nation's population who may otherwise be unable to access credit of any form.
A final factor contributing to the explosive growth of BNPLs in the UAE is the relative nascency of its economy. Unlike other nations where 2 or 3 providers service the majority of consumers, the UAE is still in an incredibly fragmented phase with multiple competitors vying for every slice of market share they can. Even so, one company has managed to lead the pack in 2022 in terms of market share and many other key metrics.
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A Sit-Down With the CEO of Tabby: MENA's Leading BNPL Provider
Hosam Arab co-founded Tabby in 2019 and took the service live in 2020 after noticing that the vast majority of payments were still handled in cash. He identified this as a pain point not only for the consumer but also for the many businesses who were forced to deal with the risk and inconvenience of cash payments.
Hosam envisioned Tabby as not only an alternative credit solution but as an alternative way to shop online altogether. In doing so, Hosam aimed to target the underserved community within the UAE that had been excluded from the traditional financial system by limited access to credit options.
The great thing about being a BNPL provider, Hosam reports, is that the demand for the service is only increasing with awareness of it. Multiple merchants have approached Tabby independently about launching a BNPL on their platform, driven by requests from their own customers.
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Challenges and Limitations to Buy Now, Pay Later
Recently, fintechs and other business across the financial sector have been reeling from a series of seismic shocks to the industry. The price of many of our favorite stocks has tumbled. Reserve banks around the world now enter a new, restrictive period of abnormally high interest and conservative lending in an effort to combat growing fears of inflation.
In such an environment, many smaller Buy Now, Pay Later providers may be faced with existential peril as floating loans become dramatically more expensive. While Hosam asserts that experienced BNPL providers would have factored the natural volatility of the market into their business plan, there remains the possibility that this funding winter may affect many companies with BNPLs being particularly exposed.
Nevertheless, there are also fundamental reasons why BNPL hasn’t managed to take off quite as spectacularly in other nations as in the UAE and MENA. Nations such as the UK and the US have a vast array of credit options, many of which are more profitable on a dollar-to-dollar basis than BNPLs. With more profitable opportunities available, many companies simply do not think that sweet BNPL juice is worth the squeeze.
Even international companies who have ventured into the MENA region have found it difficult to compete with domestic BNPL brands. A major possible reason for this, Hosam suggests, is that BNPL requires intimate functional awareness of your market.
With a clear understanding of the broad, macro-economic dynamics at play in the UAE and worldwide, Tabby has managed to carve out a comfortable space for itself within the Buy Now, Pay Later sector.
Would you like to learn more about how Hosam Arab and Tabby have managed to grow into the biggest BNPL providers in the MENA region? You can listen to the full episode on your favorite podcast platform or watch it in crystal clear HD on YouTube.