Virtual Cards Accelerate Buy Now, Pay Later in MENA

The pandemic and associated economic hardships have given a huge boost to buy now, pay later (BNPL), as consumers enjoy the benefits of making multiple interest-free installments in place of high-interest card payments.

In the Middle East and North Africa (MENA), the offering has gained wide popularity among cash-centric consumers, giving way to the launch of four major BNPL firms — Postpay, Tabby, Tamara and Spotii — in the space of about two years. And with that level of competition, building value and protecting turf has never been more important.

For Postpay, standing out from the competition has led to the launch of a virtual card, which it claims is the first in the MENA region and “probably the first 10 in the world,” according to Postpay Founder and CEO Tariq Sheikh.

Read more: BNPL Was ‘Highly Needed’ Across MENA, Where Banks Now Play Catch-Up With FinTechs

In an interview with PYMNTS, he said the new direct-to-consumer solution not only gives customers access to three interest-free installments, but it enables them to shop wherever they want. Customers simply have to create their virtual card on the Postpay app, and then add it into their Apple Pay, Samsung Pay or Google Pay wallet without the need for any integration with the retailer.

See also: Tabby Remains Independent Amid Increasing Consolidation in MENA BNPL Space

“It’s one of the most disruptive products [out there and it] empowers the customer to choose where they want to shop in installments,” he said. “No other buy now, pay later [player] in the region can say that they allow their customers to shop anywhere in installments.”  

Drop in BNPL Customer Sense of Entitlement

Like most BNPL firms, Sheikh said Postpay has seen an increase in conversion rates — a margin of about 20% to 50% depending on the type of retailer — since launch, which he attributed to two underlying drivers; the customers that Postpay is bringing to retailers and the customers who might otherwise not have checked out if there wasn’t an option to pay in installments, he explained.

Another observation the firm has made is a reduction in return rates when it comes to BNPL customers, compared to others who make a full upfront cash payment and feel more “entitled” to request a refund or return a product that they no longer want.

That sense of entitlement is significantly lower for BNPL customers, he noted, adding that there is an actual reduction and a positive behavioral trend developing where “only critical, true refunds” are issued.

While customers are entitled to refunds and returns when necessary, he said, avoiding those edge cases where customers ask for a refund “just for the sake of it” has been economically beneficial.

Moreover, for a region where there are high logistic costs attached to deliveries, Sheikh added being able to cut down on unnecessary customer returns and refunds is a strong proposition when it comes to general fulfillment.

Growing on its Own

The Dubai-based firm is one of the three firms in the region’s BNPL segment — in addition to Spotii and Tamara — to have partnered or secured investments from major global players so far this year, a sign of growing interest from international players looking to penetrate the region’s booming eCommerce market.

Learn more: Saudi BNPL Firm Tamara Raises $110 Million Led By Checkout.com

In June of this year, Australian BNPL giant Afterpay invested $10 million in Postpay, and Sheikh said it’s been an honor to learn from and to be associated with one of the leading players in the BNPL space.

But while that partnership continues to be hugely beneficial to the firm, he stressed that Pospay is an independent company — “we are growing by ourselves … and launching new products independently.”

Related: What The Square Afterpay Deal Means For BNPL, FinTech, BigTech And Banks

Moreover, following Afterpay’s acquisition by payments FinTech Square this August, the firm is currently in a wait-and-see situation as to how that relationship will evolve when the acquisition is finalized.

In the meantime, a key focus will be expanding across the wider Gulf Cooperation Council (GCC) region, with plans to move beyond the United Arab Emirates (UAE) and Saudi Arabia to six new countries in the next 12 to 18 months, he said, before looking at countries that are adjacent to the GCC.

Any expansion plan would have to be very strategic, he explained, because BNPL is a “very localized” product and moving into a new country requires having connections with local credit bureaus as well as gathering information and data on the local card market.

Overall, he said the future of BNPL is going to be based on three factors: their current eCommerce model with merchant partnerships, opening up other retailers so that customers can choose where they want to buy and pay in installments, and finally deploying in-store payments.

“Those three areas will be the key drivers for Postpay in 2022,” he said.