As credit card rates rise, UAE consumers head for Buy Now Pay Later – and even for airline tickets

Dubai: The ‘pay later’ phenomenon is catching on with UAE consumers – and this time, it’s not just to buy the latest smartphone or home accessory. They are buying now and paying later across a much broader set of categories – whether that’s a car or on the airline tickets for the upcoming holiday.

So, as interest rate hikes start to bite when it comes to credit card based payments, the BNPL (Buy Now Pay Later) way is showing a major revival heading into the final weeks of the year. The zero-interest monthly payments are making sure of that.

“Credit cards in the UAE are in widespread use, but much of the rest of the region is still dependent on debit cards,” said Ammar Afif, co-founder of the BNPL platform Cashew. “In countries with high credit card penetration, there is consumer demand for an alternative to traditional credit, and in those with low credit card penetration, consumers require some type of short-term credit facility.

In both instances, the no-cost approach of BNPL for customers offers a solution to both needs, which gives faster traction and higher potential.

– Ammar Afif

Retailers and other service providers are getting the message. “There are increasing signs of consumers in the UAE and Gulf wanting to keep their credit card spending in check,” said a retail industry source. “It has become more so after the last two rate hikes, and which gets reflected in credit card outstanding.

“We don’t want to get into a situation where during the peak fourth quarter phase, shoppers turn away. The BNPL options should keep them interested.”

Stock - Tabby

Tabby is another platform in UAE similar to Cashew, and Spotii. Founded in 2019, tabby partners with retailers to offer customers to defer paying for their purchases for up to 30 days – or to pay in four equal monthly installments at zero cost to the consumer.

Airline tickets too

Cashew sees prospects for pursuing BNPL prospects on travel spending, or Fly Now Pay Later. “With many consumers choosing to avoid travel this summer due to increased travel costs and the looming downturn in the economic climate, we are responding to consumer demand for more financially responsible ways to pay,” said Afif. “To ensure that they can still travel before the end of the year.

“It is challenging for flight operators to do this directly – so, we are partnering with travel operators to provide a ‘pay later’ option for customers so that they can have an alternative option to book their holiday.”

As is customary on BNPL transactions, on airline ticket purchases too, there is no interest rate attached on the outstanding payments each month. Cashew extends credit of up to Dh50,000 on airfares.

Stock - Credit card

Interest rate hikes start to bite when it comes to credit card based payments, the BNPL (Buy Now Pay Later) way is showing a major revival. Platforms similar to Spotii in the UAE include postpay and Tabby, both of which have a similar model where you pay the amounts in three or four interest-free installments.

“Cashew’s offering includes longer tenure ‘pay later’ options across 3-, 6- and 12-month installments,” said Afif. “This allows the consumer to budget for an upcoming holiday trip in the same way they would for anything else. We will offer this product with select partners to consumers with good credit profiles.”

Industry sources are watching this space closely. “High inflation/recession phases always alter consumer spending ways,” said an industry source. “Travel tickets are typically bought through credit cards – if consumers see there is a zero-interest option, they would look into it.”

Buy Now, Pay Later - Tamara

Tamara, a Saudi-based ‘buy now pay later’ (BNPL) platform, announced UAE expansion plans earlier this year – adding to the number of BNPL options UAE residents already have.

Big ticket deals

If earlier, BNPL offers were about shopping bills of, on average, Dh10,000-Dh15,000, these days it can extend to much bigger items. How about the latest SUV model? The ‘Drive Now Pay Later’ movement is just kicking into gear.

Receptive retailers

The BNPL ‘business model ensures that our merchant partner doesn’t face any risk in offering our product to customers in case they default,’ said Cashew’s co-founder. “We settle payments with the partner, and we take on the liability of any default transactions.

“Our solution taps into highly reliable alternative data sources to evaluate customer credit worthiness; this allows us to keep the number of default transactions low.

“In partnering with financial institutions, Cashew can provide BNPL across higher ticket items and longer tenure, which opens the door to new industries including travel, education, healthcare and insurance.

“Naturally, we evaluate limits based on the consumer profile and their predicted ability to pay back. We reward those who have positive repayment behavior with increased limits.”

Whether shopping, travelling, or flying, the pay later sure is getting a bigger size of the consumer spend in the UAE.

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