BNPL Poses Risk To Dubai Expats

Driven by the region’s digital transformation and consumer demand for flexible financing options, the buy now, pay later (BNPL) mode of payment is witnessing a surge in the UAE and Saudi Arabia. However financial advisers in the region are keen to warn of the pitfalls of such schemes.

Data from Statista reveals the UAE’s rapid transition to a cashless society, with credit cards nearly doubling in market share for point-of-sale payments since 2019, and mobile wallets gaining massive popularity in recent years.

And with the e-wallet klip initiative to replace physical cash with digital payments expected to dominate the mobile wallets market in the UAE by 2025, Mike Coady, Chief Executive Officer at the award winning financial advisory firm, Skybound Wealth Management spoke to arabianbusiness.com about the growth this payment method, and the subsequent risk of overspending.

BNPL More Appealing To Tech-savvy, Young Consumers

A UAE-based financial adviser with over 20 years of experience in the region, Mike Coady attributes BNPL’s rising popularity to the UAE’s push towards a less cash-dependent society.

“As the likes of the UAE strive towards less cash-dependent societies, BNPL fits perfectly into place, offering consumers a modern, flexible payment solution which appeals in particular to younger, tech-savvy consumers seeking instant purchase experiences beyond their current budget capacity.”

According to data by LexisNexis Risk Solutions, a data analytics provider for organisations, BNPL users are significantly younger than bank card and retail card customers.

The contrast between BNPL users and retail card users is striking, given retail card’s status as the most widespread form of retail credit in the United States alone over the past several decades. BNPL applicants have more than double the likelihood of being under 35, whereas nearly half of BNPL users are 36 or older.

Without diligent financial oversight, consumers may find themselves juggling multiple payments across different platforms, inadvertently leading to a scenario where the total owed is greater than their future repayment capacity.”

Coady likens the situation to the credit card boom but with a digital twist, requiring a new level of financial literacy and self-control.

“It’s equivalent to the credit card boom, but with a digital twist, requiring a new level of financial literacy and self-control.”

BNPL Should Be Used For ‘Necessary’ Purchases

While BNPL penetration in the UAE’s domestic e-commerce payments was below the global average in 2022, the segment is projected to continue growing.

Emirati BNPL providers such as PostPay, Cashew, Spotii, and Tabby compete with regional players like Saudi Arabia’s Tamara, as well as global giants like Klarna, which was offered as a BNPL solution on over 7 percent of websites worldwide.

“Its potential for positive impact is significant when used correctly and within the framework of an informed financial strategy. However, the pitfalls of misuse can lead to financial challenges that may outweigh the initial benefits,” Coady said.

As BNPL continues to reshape the region’s financial landscape, Coady emphasises the responsibility to foster a culture of financial prudence and education.

“Providers and regulators should work together to offer not just innovative solutions but also education. As we embrace these new financial tools, let’s also champion the cause of financial literacy to ensure they serve our best interests in the long term,” Coady concluded.

Speak To A Financial Adviser In Dubai

Understanding how to best use BNPL, and other modern financial tools for that matter can be challenging. Especially when there seems to be a new trend every month!  Enlisting the services of a financial adviser in Dubai to help you make informed decisions and maintain financial in the long term is highly recommended.

Skybound Wealth Management’s team of qualified and experienced financial advisers based in Dubai are on hand to provide personalised advice tailored to your financial goals and circumstances. With their expertise, you can better understand the benefits and risks associated with BNPL, helping you to use such services responsibly and effectively.