How is BNPL changing the Middle Eastern payments landscape?

 Ross Gallagher photo
Ross Gallagher Venture Manager at 11:FS
3min read

Payments in the Middle East are evolving.

The payments landscape in the Middle East has stood at an important tipping point for some time.

Cash is still king at physical points of sale, making up 52.6% of transactions across the Middle East and Africa (MEA) in 2020. While cash is dominant compared to other regions, it’s still declined sharply from the 70.6% it held in 2019.

The pandemic accelerated the move away from cash, but this shift had begun before the outbreak of COVID-19. Cash is predicted to lose further ground at physical point-of-sale (PoS), accounting for 51.7% by 2024, suggesting that this shift is likely to be both sustained and permanent.

The pandemic accelerated the move away from cash, but this shift had begun before the outbreak of COVID-19.

Online shopping grew sharply during the pandemic, which proved an important accelerant for digital adoption in a region where penetration remained pretty low. This is expected to continue, with the value of e-commerce projected to almost double by 2024.

Cash on delivery made up 16.4% of online transactions in 2020, making it the second-leading payment method in the region. This is also projected to fall to 11.7% by 2024.

The remaining landscape for online transactions is highly fragmented, with credit card (28%), bank transfer (15%), digital wallet (14.4%) and debit card (13.8%) each holding double digit shares of online spend.

In the face of such big shifts in payments and with no dominant method emerging to fill the growing cash void, there’s a lot to play for.

Enter Buy Now Pay Later

Buy Now Pay Later (BNPL) is an interesting thing to look at in this environment. The service offers greater flexibility by allowing customers to pay in installments. Retailers who offer BNPL at checkout typically see increased conversions, sales and repeat purchases.

BNPL solutions also address some key regional-specific challenges. They have an important role to play in tackling financial exclusion. The World Bank estimates that around 168 million adults from the Middle East and North Africa (MENA) lack access to basic banking services.

Egyptian BNPL platform Shahry sees the country’s un-and-underbanked as its largest customer segment. CEO Sherif ElRakabawy has gone on record that those without access to formal financial services ‘need access to finance most’.

The platform has grown at 100% month-on-month since its soft launch in July and raised $650,000 in pre-seed funding from Egyptian bank Egbank.

As an accessible alternative to cash on delivery, BNPL solutions are also helping to remove the collection burden on merchants, which has been a major obstacle to the growth of e-commerce in the region.

By generating most of their revenues through merchant fees, these solutions also provide an alternative to other credit products in a region where Islamic customs prohibit charging interest.

A handful of early movers are already establishing themselves

As well as Shahry, several other local startups have grown rapidly, making the most of shifting regional forces to offer users more flexible and inclusive payment methods.

Spotii has over 650 merchants on its platform across the UAE, Saudi Arabia and Bahrain, with transaction volumes rising at an average of 90% month-on-month. Zip, the second-largest BNPL provider in Australia, recently acquired Spotii for $20 million.

In April, Saudi Arabian BNPL startup Tamara raised £110 million from UK-based It was one of the largest Series A rounds in the region and came just four months after it closed a $6 million seed round. Tamara is seeing its user base grow by 180% month-on-month.

Tabby announced a $50 million Series B in August, placing the company’s valuation at $300 million. They’ve scaled 20x in transaction volume since June 2020 with over 2,000 businesses using the platform. Adidas and IKEA are two big scalps and there are reportedly over 400,000 active users, with 3,000 new installs daily.

What does the future hold for BNPL?

This growth of BNPL will be accelerated by regulatory innovation across the region. For example, the Saudi Arabian Monetary Authority hopes to turn the Kingdom into a cashless economy as part of the Vision 2030, and plans to roll out open banking next year.

This growth of BNPL will be accelerated by regulatory innovation across the region.

However, it’s important to remember that the narrative around BNPL isn’t universally positive. There’s a real emphasis on the dangers these products can present to people with low financial literacy. While merchant fees make up the bulk of provider revenues, the rest are made up by late payment fees.

BNPL has enormous potential for change in MENA. But it’s vital the correct protections and regulations are in place to protect vulnerable consumers in a region with persistent problems around financial exclusion and literacy.

 Ross Gallagher
About the author

Ross Gallagher

Ross has considerable experience designing and optimising card payment and other digital banking services for tier 1 banks. At 11:FS his focus is working with global brands to build world-class digital challenger banks.