Consumer appeal, accessibility, and the assurance of no interest or fees - as long as payments are made on time - have been the main driving forces behind the growth of Buy Now Pay Later (BNPL) services across the UAE and MENA region, experts have said.

Nick Curran, head of Endava in the Middle East, and North Africa, says that BNPL has become one of the most prominent retail trends due to the effects of the Covid-19 pandemic and the exponential growth of e-commerce.

The Middle East has witnessed a steady increase in demand for BNPL services. According to research by consultant RedSeer, 10 per cent of UAE online consumers employed the BNPL model in 2020. This percentage is expected to rise to 30 per cent by 2026, accumulating more than $2 billion in consumer credit.

Curran says that BNPL is well-liked among all demographics for many reasons, but it is particularly well-liked among millennial and Gen Z customers as a tool for financial empowerment. “Customers benefit from rapid gratification, a flexible return policy, easy access to credit, and the ability to manage their finances by spreading the cost of purchases over a predetermined time frame.”

For retailers, he noted that BNPL boosts sales, adds stickiness, and lowers basket abandonment without risk. BNPL providers pay retailers upfront and lend money to customers while taking on all of the program's administrative costs and credit risk. “Aside from the fact that embracing BNPL can improve sales, the appeal is that it can be used for much more than just payments. BNPL firms have vast amounts of data that retailers can use to enhance customer loyalty by offering more targeted products.”

Looking ahead, he said that BNPL will continue to grow across various industries, including banking, luxury retail, travel, hospitality, insurance, trading, and healthcare. This is because the ecosystem is becoming more saturated with big banks, payment schemes, and new entrants vying for a market share. The introduction of banks into the BNPL market is another trend poised to disrupt the industry. BNPL lenders are stealing a portion of banks' credit card and consumer loan revenue.

“The time is right for banks to enter the BNPL market; nevertheless, having the correct market entry strategy and business model is critical to succeeding,” Curran noted. “Banks are experienced in regulatory compliance and credit underwriting and have the data and client base to compete in this market. Banks are also well-positioned to ascertain affordability and can tailor BNPL offers based on a customer's risk profile using financial data. However, they must move quickly or risk missing the boat.”

Furthermore, as BNPL players scale and enhance engagement, Curran says that consumers can expect to see super apps that combine retail, financing, payments, and banking offerings. Globally, Klarna, Affirm, and PayPal have already jumped in with their super apps. Super apps distinguish themselves by providing an integrated, fluid, and efficient experience without the need to transition between applications. As competition intensifies, these solutions will become a significant differentiator in the BNPL market.

Saeed Ahmad, managing director, Middle East and North Africa, Callsign, cautioned that as the BNPL industry grows and providers increase their capabilities, it is expected to become a more attractive target for fraudsters.

“While the financial repercussions are troubling, the long-term consequences are far more concerning,” he said. “Fraud undermines consumer trust and, as a result, the long-term potential of the BNPL ecosystem. The most prevalent way users have been victimized by fraud is through the creation of a false BNPL account using stolen card information and identities. Due to the fact that consumers are not invoiced billed immediately, it may take a while for the victim to realise they've been targeted.”

Another tactic frequently used by fraudsters are account takeovers, in which they hack into a legitimate user's account to order items. The dangers are heightened for retailers and BNPL as they are typically held accountable for BNPL fraud consequences. Retailers and BNPL providers are often left to bear the consequences of fraud and repossession, while the fraudsters receive items they have not paid for. Furthermore, because BNPL providers have partnered with various mainstream retailers, consumers often open multiple BNPL accounts. This broadens the field for fraudsters. Account takeover or credential theft is a common precursor to BNPL fraud.

Ahmad says that cconsumers should be cautious of responding to SMS text messages or emails claiming to be from their favourite stores, as they may contain links that lure them to disclose personal information.

“These ‘Phishing’ attacks are frequently the first tool in a fraudster's toolbox when conducting BNPL and other forms of fraud,” he said. “Consumers who use the same password for all their BNPL accounts are more vulnerable to BNPL fraud. As a result, to decrease the possibility of ATO fraud, consumers should use different passwords for their BNPL services.”

“Along with raising customer awareness of security best practices, BNPL providers need to improve their knowledge of each user interaction's associated identification and how much trust can be placed in it,” he added. “Layering in approaches such as device fingerprinting, behavioral biometrics, and location analysis helps to build a more comprehensive understanding of the risk level associated with each user. BNPL providers can make more informed and precise decisions throughout onboarding, login, and payment by having a better grasp of users' digital identities. Apart from preventing fraud, this can also help reduce false decline rates.”

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