BNPL's Global Struggles vs. GCC Success: Unveiling the Paradox

BNPL’s Global Struggles vs. MENA Success: Unveiling the Paradox

Buy Now, Pay Later (BNPL) companies have been one of the hottest trends in fintech in recent years. These companies offer consumers a convenient way to spread out the cost of purchases over time, often without any interest charges. However, the BNPL sector is now facing some challenges.
In recent years, the instalments market has flourished, reaching new heights in a low-interest, low-inflation environment. For example, Buy-Now-Pay-Later schemes experienced a substantial increase during the COVID-19 pandemic, with global usage skyrocketing to $125 billion, according to research by Visa.

Regulatory Scrutiny

According to a study by Barclays, nearly 20% of BNPL users aged 18–34 have experienced negative impacts on their credit scores due to missed payments. Additionally, 25% of BNPL users are worried about their ability to repay their BNPL bills.
Because of this, governments and financial regulators have started to scrutinise BNPL providers more closely. Concerns over consumer debt and financial stability have led to calls for stricter regulations. For instance, the UAE Central Bank (CBUAE) in 2024 has introduced new Finance Companies Regulation, replacing the 2018 Finance Companies Regulation, and formally recognising BNPL schemes as a form of consumer Short-Term Credit. This significant development highlights the CBUAE’s proactive stance in regulating the BNPL sector in the UAE, aiming to promote responsible financial practices for consumers.

Increased Competition

Despite the current downtrend, the future of the BNPL market remains promising, with projections indicating it could reach $3.98 trillion by 2030. However, the landscape has become saturated with numerous BNPL providers, resulting in intense competition. Traditional credit card companies have also entered the fray, introducing their instalment payment options, often accompanied by loyalty rewards and established customer trust.
Furthermore, banks and large technology companies (BigTechs) are venturing into this segment to seise a share of the burgeoning market. This has sparked a fierce battle for survival among BNPL startups.

A different trend in MENA

BNPL yoy funding in MENA

Contrary to the global decline, the MENA region is witnessing a continued rise in the popularity of BNPL services.
According to Wamda, Buy-Now-Pay-Later (BNPL) startups have significantly influenced startup funding trends in the Middle East and North Africa (MENA). Although overall funding in MENA saw a decline in all but three countries, the total amount raised in 2023 grew slightly to $4 billion across 583 transactions. This figure includes $1.77 billion in debt financing from 10 deals. Excluding this debt financing, the total amount raised by MENA startups fell by 35%.
The surge in debt financing last year was largely driven by BNPL startups, with Tabby and Tamara raising a combined $1.3 billion in debt. These two companies alone accounted for nearly 51% of the total funding amount, including both debt and equity, raised in the region last year. Their substantial fundraising efforts also played a key role in boosting Saudi Arabia’s overall funding growth.
Several factors contribute to the contrasting trend in the MENA region:
1.      Young, Tech-Savvy Population: The MENA region boasts a young and tech-savvy population that is more open to adopting new financial technologies. This demographic is driving the demand for BNPL services.
2.      High Internet Penetration and E-commerce Growth: The MENA countries have high internet penetration rates and rapidly growing e-commerce markets. BNPL services are naturally aligning with this growth, offering convenient payment solutions for online shoppers.
3.      Low Credit Card Penetration: Compared to Western markets, the MENA region has a lower penetration of credit cards. BNPL services are filling this gap by providing an accessible alternative for consumers who might not have or want a credit card.
4.      Supportive Regulatory Environment: Unlike in some Western markets, regulatory frameworks in the MENA region have been more supportive of BNPL services, allowing these companies to operate with fewer constraints and more innovative freedom.
5.      Partnerships with Local Retailers: BNPL providers in the MENA region have been forming strategic partnerships with local retailers, increasing their market reach and acceptance among consumers.
BNPL's Global Struggles vs. GCC Success: Unveiling the Paradox

The Future of BNPL

While the BNPL market is facing challenges globally, it is not necessarily doomed. Companies are adapting by diversifying their offerings and enhancing their value propositions. For example, Klarna is expanding its services to include price comparison and savings tools, aiming to become a comprehensive shopping platform rather than just a payment solution.
Moreover, strategic partnerships with retailers and financial institutions could help BNPL providers stabilise and grow. The focus on responsible lending and consumer education will be crucial in regaining trust and ensuring sustainable growth.
In the MENA region, the future of BNPL looks promising, driven by favourable demographics, a supportive regulatory environment, and continued e-commerce growth. BNPL providers in this region are well-positioned to capitalise on these trends and expand their market presence.
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