The Role of RTP & BNPL Services Amidst the UAE’s eCommerce Boom

The United Arab Emirates (UAE) has experienced a remarkable surge in eCommerce in recent years, driven by factors like technological advancements, changing consumer behavior, and a thriving digital infrastructure. As online shopping continues to dominate the country’s retail landscape, local payment trends are also evolving to keep pace with the industry shifts.

As a result, real-time payments (RTPs) and Buy Now, Pay Later (BNPL) services have emerged as key players in the UAE’s eCommerce boom, revolutionizing the way consumers make purchases and businesses manage transactions. Let’s explore the key developments associated with these solutions and discuss their potential effects on the future of online shopping in the Emirates!

How Is the UAE’s eCommerce Market Changing?

The Global Payments Report 2023 predicts that eCommerce will account for a larger share of all purchases in the coming years, shifting from constituting just over a fifth of their total volume (23%) to being responsible for nearly one in three dollars spent (30%) already by 2025. Besides, mobile commerce is set to maintain its dominance, expanding from 61% to 67% of eCommerce transactions.

That being so, due to the fact that in recent years the UAE has established itself as a dynamic market in the Middle East and on a global scale, it comes as no surprise that its commercial landscape is developing in sync with these major trends.

When it comes to online payment methods, digital wallets are gradually gaining ground and challenging local card dominance in the UAE. In fact, e-wallets accounted for 24% of all online purchases made in 2022, as opposed to 41% and 11% attributed to credit and debit cards, respectively.

These drastic shifts in the UAE’s online commerce call for innovative solutions that can meet the evolving demands of consumers. Therefore, businesses are turning to advanced payment solutions that offer flexibility, speed, and convenience, such as RTP and BNPL services. Read ahead to find out how this approach is influencing the local eCommerce industry!

BNPL in the Emirates: A Solid Foundation for Escalated Growth

The UAE has become a prominent hub for the advancement of Buy Now, Pay Later services. Within the country, local BNPL providers like Cashew, PostPay, Spotii, and Tabby are now facing off against regional frontrunners like Tamara in Saudi Arabia.

In terms of eCommerce purchases, the share of total transaction value attributed to BNPL solutions experienced a significant increase from 1% in 2021 to 2% in 2022. Moreover, it is forecasted that such services will continue to thrive as a popular payment method for online transactions, with a projected CAGR of 37% through 2026.

What Does It Mean for the Local eCommerce Industry?

What’s more, as the popularity of these solutions continues to grow, they are expanding to cover a wider range of product categories, from groceries and retail to subscriptions and travel, with spheres like education, insurance, and healthcare expected to be underway. Consequently, BNPL service providers are also actively working on expanding their lending limits.

At the same time, amidst intensifying competition in the domestic market, UAE-based BNPL providers are beginning to target growth in other neighboring countries to drive the next phase of their expansion. For instance, in September 2022, Tabby, a leading BNPL provider based in the UAE, announced that it would venture out into the Egyptian market.

Overall, given the local customers’ increasing interest in BNPL services, we are sure to see even more innovative solutions emerging in this sphere in the UAE in the foreseeable future.

RTP in the United Arab Emirates: Exploring New Horizons

The UAE has two major real-time payment systems: the Immediate Payment Instruction (IPI) scheme, established in 2019, and the Instant Payments Platform (IPP), launched in the first quarter of 2023.

Although these schemes are still new, it is safe to say that they are in great demand. For instance, in 2021, the IPI processed 21.1 million transactions amounting to AED 51.7 billion (approximately $14 billion), which marked a significant increase of 47% compared to 2020.

While the IPI exclusively caters to person-to-business (P2B) payments, the IPP will encompass person-to-person (P2P) and business-to-business (B2B) transactions once it is fully functional. Additionally, it will facilitate Direct Debits from accounts and QR-code-based payments.

The implementation of the IPP is planned to occur gradually throughout 2023, with all UAE banks being obligated to participate in this scheme.

How Do Real-Time Payments Affect eCommerce in the UAE?

Some of the ways in which RTPs are expected to improve eCommerce in the UAE include:

• Improved customer experience. Real-time payments provide a seamless and convenient checkout experience for shoppers.
• Increased conversion rates. With real-time payments, customers are less likely to abandon their shopping carts due to a lengthy payment process, which leads to higher conversion rates for eCommerce businesses.
• Enhanced security. RTP systems often incorporate advanced security measures, such as two-factor authentication and tokenization, to safeguard transactions. These security features help protect both buyers and sellers from fraud, making eCommerce transactions more reliable.
• Streamlined business operations. Real-time payments enable businesses to automate payment processing and reconciliation, reducing manual intervention and streamlining financial operations. This efficiency not only saves time and resources but also minimizes the chances of errors or discrepancies in payment records.
• Greater financial inclusion. Real-time payment systems can promote financial inclusion by providing access to digital payments for individuals who may not have access to traditional banking services. This widens the customer base for eCommerce businesses, allowing them to tap into previously underserved markets.

What’s more, real-time payments encourage digital transactions by reducing consumers’ reliance on physical currency. This fully aligns with the UAE government’s vision of promoting a digital economy and supports the country’s goal of shifting toward a cashless society.

What Other Trends Are Expected to Drive eCommerce in the UAE?

As you can see, eCommerce in the UAE is evolving at an unprecedented pace, which is largely due to such solutions as RTP and BNPL schemes. With this in mind, it is safe to say that we will keep seeing a persisting focus on mobile commerce and a striving toward cross-border commerce in the country in the upcoming years.

However, there are other industry trends that are expected to drive eCommerce in the Emirates in the near future, namely:

• Social commerce. Brands are leveraging social media to engage with clients, showcase their products, and enable direct purchasing via integrated features. In the UAE, social commerce is projected to grow at a CAGR of 19.9% from 2022 to 2028. Besides, its Gross Merchandise Value (GMV) is expected to rise from $975.2 million in 2023 to $2898.7 million by 2028.
• Augmented and Virtual Reality. AR and VR technologies enable consumers to virtually try on products, visualize how they will look in their surroundings, and enhance the overall shopping experience. UAE retailers are actively adopting AR and VR to engage customers and boost conversion rates.
• Same-day and on-demand delivery. Many eCommerce companies based in the UAE are focusing on expanding their logistics networks and partnering with delivery services to offer same-day and on-demand delivery options. Additionally, technologies like autonomous vehicles and drones are being explored for faster and more efficient deliveries.
• Voice commerce. Voice assistants, like Amazon’s Alexa and Google Assistant, are rapidly gaining traction in the UAE. According to the latest studies, voice commerce might account for 30% of the Middle East’s eCommerce revenue by 2030.

All in all, the evolution of eCommerce in the UAE is an exciting journey to follow. Given the country’s innovative approach and the impressive pace of advancements that it has been demonstrating so far, both consumers and businesses are sure to thrive in this digital landscape for years to come.