I wrote in Q4 last year about the pressures facing the BNPL Fintechs in a rising interest rate regime.
Strategic moves to take at that time if you were in the management team of a MENA BNPL (not exhaustive):
- Improve sources of revenue such as Affiliate income, Ads, Virtual cards
- Reduce credit costs by tighter underwriting policies.
- Reduce the duration of the lending (make it three months instead of 9 months)
- Reduce the amount lent per transaction (BNPL for apparel rather than BNPL for cosmetic surgery, for example)
- Reduce the cost of debt, if at all possible
- Securitize current debt portfolio, if possible
Those measures may have come too late for some. Earlier this year, we got news of Spotii (BNPL Fintech) closing operations in the UAE. While this is sad news for the employees, the writing was very much on the walls.
There may be a further shakeout in the MENA BNPL space, and before the end of 2024, we can expect to see just 1 or 2 players emerging as strong players.
Tabby and Tamara could prevail because of their funding war chest and the network effects of having more merchants and customers. Tabby has a virtual card giving it access to interchange income. Tabby has raised more than $410 M in debt and equity since 2019 (Techcrunch). Tamara has raised over $215M from 5 rounds (Crunchbase).
Spotti has not been a long-term acquisition for Zip (BNPL based in Australia). Zip acquired Spotii for $16m in 2021.
As per their financial report, During HY23, Zip completed the wind-down of the UK, Singapore, and Mexico. Zip is currently winding down operations in the Middle East (Spotii), which is expected to be completed by the end of June. Note that HY23 runs from 1st July 2022 for Australian businesses.
A Bloomberg report suggests it is exiting 10 of its 14 overseas markets. The reason? 95% drop in share prices! Investors are not pleased, and markets other than ANZ are bleeding cash. Their US foray has been prioritized over that of the other markets. Affirm and PayPal are fairly big competitors in the US market, so the sagacity of this move is also questionable.
For more information about Zip's Financials, check out the investor presentation from Feb this year (attached).
Worth a close examination as it gives you an idea of the pressures facing the BNPL companies.