Storm clouds may be ahead for Buy-Now Pay-later companies in the MENA region:
These are the business drivers to watch in 2023-24:
1) Cost of Funds going higher:
In 2022, lending rates pegged to the USD have increased. This applies to BNPLs that do not have lending lines secured at a reasonable rate. The UAE Central Bank's base rate is 3.9% as of Nov 2022. Likely to increase to 4.25% or higher.
![BNPL Revenue Drivers](https://images.storychief.com/account_5589/BNPL-RevenueDrivers_001_e8b4d1a39c04ebe7d175288186ea0c4d_800.jpeg)
2) Virtual Credit Card capability:
For example, Tabby and Postpay have virtual credit cards. Not having the ability to issue an open-loop virtual card means no interchange income or loan processing fee on the card.
3) Credit Loss Provisions will mount:
Credit losses tend to increase as inflation begins to bite and layoffs mount in a recession. So do frauds. Non-performing loans for S&P-rated banks in 2013 in the UAE were 3.9% as a percentage of loans advanced. 2013 is only used here as a reference and is not my view on expected losses. Underwriting customers strictly will become necessary.
![](https://images.storychief.com/account_5589/BNPL-RevenueDrivers_002_790e1fef7aa2adbd387e5dbb695c6be4_800.jpeg)
4) Duration of Credit will have an impact:
A longer duration of credit (12 months as opposed to 3 or 4 months) will result in lower funds utilization annually. BNPL is a velocity business; with quick lending and quick return. If you extend borrowing for a longer duration, your returns get suppressed.
Example: Postpay allows for three installments (shorter duration). Cashew offers BNPL with 12 months of repayment on high ticket purchases (Jewelry, Medical fees, and so on).
![](https://images.storychief.com/account_5589/BNPL-RevenueDrivers_003_b23a099f1674f677ddfb52fdca3eacb1_800.jpeg)
5) Type of Products that customers purchase will evolve:
Luxury Products tend to do well in a recession. Consumer staples also tend to do well. Which of these products are covered by BNPL?
What moves will you be making if you are in the management team of a BNPL right now?