Buy now, pay later (BNPL) has bagged the headlines and received its fair share of the fintech spotlight. But how does it relate with regards to the Middle East and Africa (MEA) region?
Overview of BNPL in MEA
Globally the concept of buy now, pay later – in my opinion – isn’t anything new. There have been previous versions of it – it’s just that the current BNPL is a digitalised experience and almost in a way like a ‘layaway’ plan in reverse.
Typically with a layaway, one pays in instalments and then once paid in full they can get the item. Whereas with BNPL, one tends to get the item upon the first instalment.
Prior to the BNPL craze there were (and still are) aspects of a BNPL in terms of shopping. Retailers in the United Arab Emirates (UAE), such as electronics retailer Sharaf DG, offered a Flexipay option, while in South Africa, furniture and appliance retailer Bradlows (owned by JD Group) offers lay-by.
The idea of paying in instalments is also quite common in Latin America – think Brazil and the ‘parcela’ concept. Meanwhile, in Turkey, instalments have been a common practice with banks as well as cards that are accepted both online and in store.
As with fintech generally in other parts of the world, it is still relatively infant in the MEA region and BNPL is no exception. However, MEA has been playing catchup with the global fintech ecosystem and the pandemic further solidified the urgency for a wider digital experience.
The majority historically in much of MEA have been financially excluded and also the ecosystem generally hasn’t provided the proper mechanisms (i.e. credit bureaus, for example) to give the data to provide the mechanism for a more advanced financial services ecosystem.
In the GCC region, home to some of the world’s richest nations, traditional layaway type plans may not have been as popular as they were in say the US Canada or Europe.
Enter BNPL – the global craze that has seen much success in particular in Europe, North America and parts of Asia Pacific (APAC) – including Australia and New Zealand. The likes of Klarna from Sweden and Afterpay and Zip from Australia and Affirm and Sezzle from the USA have boosted the BNPL craze globally to the point that the BNPL’s overall rise in popularity could lead the industry to rack up almost $700billion ($680billion) in transaction volume worldwide by 2025.
This means that it would have a hat compound annual growth rate (CAGR) of 13.23 per cent from the $285billion the industry was estimated to record back in 2018. Also, facilitators (aka those companies that are enabling their merchant network to offer direct providers’ BNPL solution) is also a long list that includes the likes of Visa, Mastercard, Stripe and Shopify – to name a few.
While one could use BNPL in store, its nature really thrives via e-commerce, which the pandemic back in March 2020 helped really accelerate the popularity at home. Remember those purchases we made via retailers like Amazon or others? Well, BNPL helped many buy their both necessary and not so necessary items while many across the world were confined to their homes due to various lockdowns to stop the spread of the coronavirus.
Has BNPL caught on in the MEA region? Well yes to an extent.
BNPL in the Middle East
The GCC region has included local players such as Saudi Arabia’s Tamara and in the UAE includes Postpay, Tabby, Payby, Cashew and Spotii as well as Shari’a-compliant Taly from Bahrain.
As highlighted earlier, the GCC and Israel are some of the world’s richest nations in the world (especially in the GCC with Qatar and the UAE boosting very high GDPs per capita) – so can BNPL work there?
Richie Santosdiaz speaks with Tamara’s COO Turki bin Zarah
Tamara’s COO Turki bin Zarah highlighted, and which I also concur as an economic development advisor, that the medium household income in the GCC is similar to that in the US or Western Europe. Also, Tamara in this case offers a better experience and doesn’t necessarily target one income group per say.
Not everyone is driving Ferraris and drinking coffee with gold flakes! The region is home to a wide variety of incomes and nationalities where in particular Qatar and the UAE, the local population for each of them is only around 10 to 15 per cent and the vast majority are expats from across the world – both the professional class and mostly also blue-collar workers.
Israel – the Startup Nation – has also seen BNPL grow in the country. Some Israeli-born BNPLs include US-Israeli Sunbit, which last year hit unicorn status, as well as Splitit, which already has a market cap of $150million as of last year. There is also Jifiti, which provides a technological solution that enables banks to enter the BNPL sector.
BNPL in Africa
The African continent, which generally is overall has had a significant proportion of its population be financially excluded, presents a unique opportunity for BNPL. South Africa, in comparison to other African countries, offers a more advanced financial ecosystem and has had the traditional lay-by as they call it there.
The popularity of BNPL really grew in the continent during the start of the pandemic. It is expected that in Africa, the BNPL market size will be at least $7billion (7.18 to be exact) by the end of this year. Much of the popularity, as with fintech, is shared within the four major fintech hubs in the continent – Nigeria, South Africa, Kenya and Egypt – as highlighted in my Fintech Times Fintech: Middle East and Africa 2021 report.
To spotlight, for instance, in South Africa alone this year BNPL is expected to grow almost 100 per cent (97.5) to reach over $450million ($457.3) by the end of the year.
In the African continent, some of the biggest players include the likes of Payflex from South Africa (which last year Australian BNPL Zip took a 25 per cent stake), Lipa Later from Kenya, Credpal from Nigeria and Sympl from Egypt.
The challenges and opportunities of BNPL globally and in MEA
In terms of the wider BNPL ecosystem, a major challenge has been around the regulatory aspect of it. Given its relatively new concept in its modern digital form, many governments are grasping on how to overall protect the consumer from it. The question remains – although it isn’t a loan there are still implications where consumers could miss their payments and buy more outside of their budget nor ability to pay back their items. Afterall, as they offer consumers essential free access to credit and unlike traditional credit there is little to no prior credit checks – meaning its accessibility is wide. In particular, the digitally savvy Gen Z and Millennials have embraced BNPL.
Many are figuring out the regulatory aspect of how to regulate BNPL.
On 20 June, the UK announced a series of initiatives that seek to offer more protection to consumers, and raise awareness around the full implications of using BNPL services. Expected to come into action from 2024, any lenders providing the service will need to be approved by the UK’s Financial Conduct Authority (FCA). They will also be required to perform regular affordability checks to ensure that the loans they’re offering are affordable for the customers who receive them.
Advertisement for BNPL should be equally clarified, with the announcement stating that they should be ‘fair, clear and not misleading’. The announcement also provides more options to borrowers who feel like they’ve been abused, with the Financial Ombudsman Service (FOS) now directly accepting BNPL complaints from consumers. It will be interesting to see if other jurisdictions across the world will follow the UK’s lead in this.
Nevertheless, despite its recent challenges, BNPL presents an opportunity and the MEA region could benefit from it. This can see the growth and its further adoption of course. It will be interesting to see the likes of the bigger players globally if they would enter and penetrate the MEA region through their own or through acquisition and or/ investment, as in the case of Zip with Payflex. Zip also did something similar in the Middle East when it acquired Spotti last year for $20million.
In addition, even UK-headquartered unicorn Checkout.com led a major investment round last year with Tamara valued at $110million. Even Ikea has gotten in on the action as Ingka Group, an Ikea operator which owns 389 IKEA stores and e-commerce operations acquired a minority stake in Israeli fintech and BNPL solution Jifiti last year with a $22.5million investment.
So, there definitely is interest from the non-MEA world in the MEA region. I predict that more of these types of investments will happen. In particular as the largest players like the Klarnas further saturate their home markets and MEA – which compared to North America, Europe and parts of APAC – is still generally more an infant market yet is home to nearly one-third of the world’s population (around 1.8 billion people). Also, the MEA population is generally young and tech savvy with some of the world’s largest mobile penetration percentages – like with mobile in East Africa for instance or smartphones in the GCC region, such as in Saudi Arabia.
Also with the UK, a further integration of the GCC (such as with cross-border payment collaborations like the Gulf Payments Company), the wider Buna with the Arab Monetary Fund (AMF) as well as in the African continent in particular with the African Continental Free Trade Area (AfCFTA) could be great platforms should there be more regulatory rules around BNPL. They could be great economic integrative platforms to overall not just promote regulation but importantly to facilitate international trade and investment.
Buy now, pay later will continue its grow despite its current challenges and MEA and other parts of the world will offer that predicted acceleration the subsector of fintech has already enjoyed thus far.
