1. BNPL adoption has grown significantly over the last 2 years – customers use BNPL to avoid credit charges, manage budgets and move up the affordability ladder

BNPL transactions have been starting to figure more prominently within the payment mix over the last two years in the MENA region. BNPL is thought of as a replacement for credit cards in some cases, where the primary driver of using BNPL is avoiding credit card charges.

Managing budgets is another key reason for using BNPL. Many users also tried it out as the option was freely available. Hence we feel customer acquisition is not a big challenge here, however, platforms will need to work on how to maintain stickiness and drive more use cases for onboarded customers.

2. Fashion, BPC currently account for a large share of BNPL orders as the upper cap on ticket size is still limited to ensure credit risk is minimized in early stages

Fashion and BPC sectors figure prominently in the mix within BNPL transactions, currently. This is because the upper limit for BNPL transactions is still relatively low. The cap is typically raised, only gradually, accounting for multiple factors. Going forward, we expect high-ticket segments like electronics to figure more prominently. Other service lines like leisure and travel will also start figuring within the mix as we move forward.

Egypt witnesses the highest levels of defaults due to the large population and lack of strong regulatory control. A big share of the expat population and governmental financial regulation has kept levels of defaults low in the UAE. KSA is the first country to implement BNPL regulations, yet is witnessing a higher number of defaults in comparison to UAE, but lower than Egypt.

3. Multiple BNPL players exist in the region, and other entities like traditional banks also looking to tap into this service offering; we see a lot of consolidation playing out across the globe in this space

Tamara and Tabby are the most sizable players, having raised more than $100 Mn of funding each. The players’ strategy around # of instalments is key to driving consumer adoption and different models are at play. Most partner stores for the BNPL players are in the Fashion and BPC space currently.

A key point to note is that traditional financial institutions and retailers are also entering the BNPL space and rolling out offerings. Additionally, multiple rounds of acquisitions and consolidation have been observed in the space, globally. We are at a key juncture in terms of the evolution of the industry and its market participants.

Notes: Top 2 sectors are taken for each BNPL player based on number of partner stores for each sector

4. The BNPL sector has scaled well – we estimate USD 0.6 Bn of GTV will be processed in MENA in 2021

We estimate USD 0.6 Bn of BNPL transactions to take place in MENA over 2021. UAE will account for the largest share in terms of value followed by KSA.

Strong growth is expected in the space over the next 3-5 years as players continue to expand geographically and also in terms of sector coverage and use cases.

BNPL has already resulted in a strong positive impact on basket size with a 30-50% increase reported by some retailers. We expect this to further improve going forward.

Default rates are expected to go down progressively as more stringent checks come in place and better credit history becomes available.

GTV of BNPL transactions in MENA, 2021F