New payments infrastructure
Credit or splitting payments
Gulf banks such as First Abu Dhabi Bank are moving to claw back billions of dollars in market share from buy-now-pay-later (BNPL) financial technology companies, turning to new payments infrastructure to reassert control at the checkout.
Global payments technology company Visa says it is working with lenders in Saudi Arabia and the UAE to expand its “Instalment Solutions” platform, which allows credit card holders to split payments into interest-free instalments, mimicking the core appeal of BNPL services.
“We’ve set up the infrastructure for banks to offer customers the choice between buying on credit or splitting payments,” Godfrey Sullivan, Visa’s acting head of products for Central and Eastern Europe, Middle East and Africa, tells AGBI.
“Consumers love it, especially Gen Z; we see regional BNPL players absolutely killing it.”
Generation Z refers to the demographic born roughly between 1997 and 2012. The first generation to grow up with smartphones, social media and streaming, they are seen as very comfortable with technology, multitasking across applicants and platforms.
BNPL, by contrast, sits relatively uncomfortably with the traditional bank credit model as it is short-term, interest-free and merchant-funded.
But with BNPL participants such as Tabby and Tamara now handling up to half of checkout volumes on ecommerce platforms including Noon in Saudi Arabia, according to Visa, Gulf lenders are under pressure to defend their position or risk losing a generation of borrowers.
In the two largest Arab economies, Saudi Arabia and the UAE, BNPL adoption now outpaces credit cards by about 10 percentage points, according to Synapse Analytics.
BNPL services in the UAE are expected to surpass $2.5 billion this year, with Saudi Arabia forecast to hit that milestone by 2030, Research & Markets data shows.
Globally, McKinsey estimates banks are losing more than $10 billion annually to BNPL players.
“It will be challenging for banks to reclaim market share from BNPL providers,” says Armineh Baghoomian, managing director and Europe, Middle East and Africa head at San Francisco-based Partners for Growth, which provides debt financing to Tabby.
Though banks hold advantages with established customer and merchant networks, and strong balance sheets, Baghoomian says, BNPLs too have built strong relationships with merchants who are often reluctant to offer too many checkout options.
“Overly cautious risk models in underwriting consumers can also cause problems and diminish the appeal of BNPL’s flexibility,” Baghoomian says.
Some Gulf lenders have moved early. Abu Dhabi Islamic Bank partnered with Spotii in 2021 to launch a virtual BNPL card, while First Abu Dhabi Bank introduced the SlicePay card with Mastercard in 2023.
Outside the Gulf, Citigroup and Lloyds have begun rolling out installment offerings, looking to retain users, recover merchant fees and upsell longer-term lending products.
Still, banks have yet to achieve widespread traction.
Pritam Basu, founder of UK-based fintech Boseman, says banks might fare better by embedding BNPL into existing products. Boseman builds new credit decision making, payments and investment technologies, and was an early investor in BNPL startup Drip Brazil.
“They could try to build the standard ‘pay in three’ offering into current accounts, similar to UK digital bank’s Monzo Flex where you can pay for anything with your Monzo card and convert it to BNPL later,” Basu says.
“A Monzo Flex-style solution also means you are not tied to merchants accepting BNPL but [to] anything you buy.”
However, the experience of dedicated BNPL players is “hard to beat so they need to get that right,” Basu says.
Even for fintechs, the economics aren’t simple.
“BNPL is often a loss leader,” Basu says. “As rates rise, the fixed commission they charge merchants is hard to move up. That’s why most make money on their longer-term credit offerings where they charge interest.”
Tabby, backed by Abu Dhabi sovereign wealth fund Mubadala Investment Co and valued at more than $3 billion, now serves 15 million users and says annualised transaction volumes exceed $10 billion.
The unicorn, which could sell shares to the public next year, recently expanded into physical retail with its “Tabby Card”. A unicorn is a closely held startup valued at a $1 billion or more.
“Over time, it’s also plausible that BNPL providers begin to move upstream, expanding to include deposits and broader credit offerings, positioning themselves in more direct competition with banks,” Baghoomian says.
“Ultimately, the more likely scenario is partnerships, not full-on disruption … as we’ve seen in other markets where banks are opting to partner with fintechs rather than build in house.”
