BNPL in GCC Pitchbook (6030)

BNPL Concept
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Pitchbook
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Agenda
Opportunity
Market and Competitive Analysis
Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

Venture & corporate capital increasingly drawn
to Fintech; leads the way in number of unicorns
Sectors (top 5) Number of unicorns % of total Combined value, Selected examples

USDbn
Fintech 127 17% 503

Area: Payments
Valuation: $95 bn
Internet software &
113 16% 273
services
E-commerce &
84 12% 215
Direct-to-consumer Area: Consumer finance
Valuation: $46 bn
Artificial intelligence 59 8% 283
Health 55 8% 138
Area: Investments & Trading
Valuation: $12 bn
Other1 291
1. 11 remaining sectors
Source: Crunchbase McKinsey & Company 4

A various range of players including telcos and retailers have
emerged with specific Fintech propositions
Digital Banks Digital attackers Telco Fintechs Retail Fintechs
Digital only Digital youth Started as Initially Emerged as Focuses on Core Initially The retail Created a
bank by banking app an FX provided a zero-fee remittance capability started with giant new banking
Mashreq Bank launched by trading merchants credit card and relying on P2P transfer Walmart initiative
launched in ADIB in August platform, online offer and merchant lending player with initiates a designed to
2017. Users 2021. The over time payment evolved into payments business, strong Fintech to capture the
can open paperless, emerged into gateway, highest with providing penetration build an all- mid-market
Smart, Salary signature-less a full fledge iterated its valued aggressive credit line to in the in-one app consumer
or Savings and branchless digital business into digital bank investment of customers market, where and monetize
accounts. bank accounts financial BNPL play, in South USD300 m both for expanded consumers their most
Mashreq Neo come with services reached to America till now shopping into full can manage valuable
functions home-delivered player across USD 46b. and micro fledged their asset (i.e.,
more closely debit cards, and Europe, credit, very financial money; to loyalty of
to a are enabled for valuation profitable services generate a customers)
traditional mobile wallets USD 33m with 50% provider large user
bank and bank EBITDA base
transfers margin
... and many other telcos investing

Payments and Retail lending received the most funding,
with Payments leading the growth because of BNPL1
Schematic view & sample analysis
Non-exhaustive Sample analysis
Highest funding received, 2020-2021
Digital attacker banks Payments became the most

Retail-focused Retail-SME SME focused
funded fintech sector during
2020-21 , while the share of
funding for lending sectors
dropped from 36% in 2014-19
to 22% in 2020-21
SME/corp.
Retail Retail accounts SME/corporate accounts & IB & capital Fintech funding by sector
Payments lending & investment lending services markets %, Cumulative
Domestic transfers Direct (balance PFM & savings- Digital business Digital cash Front-office 100%2 100%2
(P2P) & e-wallets sheet) lending focused solutions lending management enablement -
11% 15%
trading execution
Domestic B2B Platform lending Investment & wealth Trade & supply Beyond banking
transfers & aggregators management chain finance services (eg, Middle-office -
22%
accounting) Research, trade 26%
International Crowdfunding
data, & analytics
transfers platforms
Back office - post- 24%
Merchant services
trade services and 16%
Payment processing support
& infrastructure 9% 13%
12% 6%
Operations and infrastructure 4% 6%
Open banking enablement Banking-as-a-service core banking Data, Analytics & visualization Customer care & engagement 6% 6%
compliance, risk & AML platforms Digitalization and process automation 11% 11%
1. Payment is leading the growth given lot of funding of the lending has been shift to payment because of BNPL 2014-19 2020-21
2. Figures may not sum to 100%, because of rounding
Source: Dealroom.co: McKinsey FinTech McKinsey & Company 6

Retail lending fintechs experienced major funding growth of more
than 215% in 2021
Sample deep dives by FinTech Index
Fintech funding by sector, powered by McKinsey FinTech Index1

$ billion
Banking-as-a-Service & core Retail lending (incl. direct lending, SME & corporate lending (incl. direct
banking platforms aggregators, and BNPL) lending, and trade & supply chain finance)
+215%
+25% p.a.
+66% p.a. +7% p.a. +174%
15.1
+115% 5.2
2.8 2.2 2.7
1.3 5.8 4.8 1.5 1.9
0.2 0.7 0.9 0.9 3.6 4.0 3.6 0.8
2016 17 18 19 20 2021 2016 17 18 19 20 2021 2016 17 18 19 20 2021
2% 3% 31% 16% 7% 6%
Fintech Index1
Proprietary asset powered by McKinsey FinTech in partnership with Dealroom.co to track VC funding flows based on ~2,500 key fintechs.
Please contact fintech@mckinsey.com for details.
1. Fintech funding is defined based on FinTech Index methodology and represents most but au the fintech funding. Funding primarily focuses on VC- backed
funding rounds and excludes IPO. acquisitions, and debt rounds.
2. Total fintech funding excludes IPO, acquisitions, and debt rounds
Source: Dealroom.co, McKinsey FinTech McKinsey & Company 7

Addressable lending volumes are projected to grow between 2-4%,
with POS financing4 growing at the fastest pace (18-20%) globally
Xx% CAGR 20-23
Addressable Outstanding Balances, Unsecured Lending Outstanding Balances, Secured Lending Outstanding Balances,
$B $B $B
SME Lending2 Secured Consumer Lending1 Point-of-Sale Financing (including BNPL) Credit Cards3 HELOC Auto Loans Mortgages
Unsecured Consumer Lending Personal Loans
+3% p.a.
$15,069
+7% p.a. +3% p.a.
(2-3%) $1,369 $12,692 (0-2%)
$1,008 $310
18-20%
$13,890 $183
$11,674
$1,102 $1,369 7-8% $1,487 3-4%
$1,114 $319
9-10%
$196
$106
$1,114 $1,326
$12,692 2-3% $148 2-3%

4-5% $10,895
$990
$11,674
$860 $10,029
2020 2023F
1. Includes Mortgages, HELOC and Auto Loans 2020 2023F 2020 2023F
2. Includes SBA Loans, C&I Loans, Cards, MCA etc.
3. Includes General Purpose and Private Label Credit Cards
4. Including BNPL
Source: McKinsey Consumer Lending Pools McKinsey & Company 8

Customers typically have three finance options at point-of-sale, of
which BNPL is the new digital payment/retail lending option
Finance options at POS
Traditional merchant-linked
New digital BNPL Traditional credit card lending
POS loans
Customer  Single application  One-click after lender approval  Loan for individual purchase (from
payment  One-click at checkout  Interest-free (if balance settled) merchant I third party)
experience  Clear link between instalments  Full loan application
and transaction  Deposit sometimes required
Repayments  Short schedule (e.g.., 1-3  Ongoing (monthly minimum)  Longer fixed schedule with APR, e.g.
payments) per transaction 9% for 12 months
Channel  Primarily digital; virtual cards  Either digital or in-store  Either digital or in-store
emerging
Purchase size  <£1k, often smaller e.g., <£200  Flexible, £1-£10k+  Large-ticket purchases, typically >£500
Example 1
players
1. Mediamarkt partnership offers financing on purchases <EUR750
Source: McKinsey McKinsey & Company 9

FinTech players with lending platforms (mostly BNPL players) are
already capitalizing on this growing opportunity
Latest valuation1 in $B
NOT EXHAUSTIVE
BNPL players (120% growth in

0.8 0.2-0.3
2020) like Klarna and Afterpay,
9.67 Klarna, QuadPay etc. have
Lending
grown with eCommerce in lower
platforms +
ticket items (<$250) with a focus
Lending-as-
on high margin fashion and
a-service 0.09 accessory brands
0.03-0.05
2.4 Off-card solutions (80-100%

growth in 2020) like Affirm
focused on higher ticket items
0.05- ($250-$3000) grown in COVID
31 0.9 0.07
23.9 <1.0 with boom in white goods,
travel, sports equipment sales
Lending <1.0 0.9
platforms Commercial lending platforms
27.2
0.3 0.4 0.1-0.17 have seen a lower growth due to
competition from supply chain
<1.0 8.65 integrated players (e.g., Taulia)
1.52
and increased SMB lending
Consumer Commercial default rates
1. Valuation based on either of: publicly disclosed value, or estimate based on last funding round amount, using similar rounds as benchmarks
Source: Dealroom McKinsey & Company 10

Buy now pay later is a form of
POS lending creating a transaction between
customers, merchants, and BNPL providers
Consumer gets immediate Key characteristics of BNPL

access to their goods or services
POS Lending
Available as a POS option, with increasing
presence in SKU1 page and advertising
Consumer
Installment Payments
Consumer buys and Consumer repays the
receives goods or provider for their Payments are deferred (e.g. in installments), with
services from a merchant purchase over time flexibly to pay off debt earlier as required.
Customers get immediate access to the goods or
services purchased
The BNPL
Model
Omnichannel experience
Online or in a physical store using an app
(QR code)
Buy now pay
Merchant later provider
Limited credit checking
BNPL providers typically perform limited credit
checks relative to traditional credit products and
Provider pays the merchant for the can therefore provide close to instant credit
purchase (minus merchant fees) approval at POS
1. Stock Keeping Unit
SOURCE: McKInsey McKinsey & Company 11

BNPL is increasingly used as an ecommerce payment method,
globally
X E-commerce Transaction value
Share of BNPL in Global E-commerce payment methods, 2021 using BNPL, by region, $B
X X
2021 2025E
North America Europe Global
9.0% 12.0%
8.0%
4.0%
5.0%
3.0%
64 207 60 150
Example players Example players

159 415
Latin America Saudi Arabia & UAE Asia Pacific
2.0% 3.8% 2.0%

1.0%
1.0%
<1.0%
- 3 0.3 2.5 7 76
(Installment options currently Example players Example players

offered by credit card companies
and retailers directly)
Source: Worldpay Global Payments Report 2021 McKinsey & Company 12

Usage increase will also be pulled up by an increasing proliferation
of Buy Now Pay Later across the globe
Financing need Provider Description

Online shopping AfterPay is an interest free, installment payment solution with up to $1500 facility
Zip has two offerings: Zip Pay – an interest free, installment-based payment option with a facility of up to $1000; and Zip Money for amounts over $1000
with interest charged for balances outstanding for over 3 months. Both options have a $6/month subscription fee1 and are merchant linked
Deferred payment service for purchases made from online merchants
Can be completely accessed through mobile application
Provides lease-to-own payment plans that enable individuals to shop for devices, accessories, or others online or in-store
Loan of up to USD 1,500
Consumer lending platform that provides instant user account opening, real time credit approval and an EMI (equated monthly installments) payment option
EMI operates only with its 30 partners; partner merchants have to be accessed through zest website
Online POS lending solution offering unsecured consumer financing loans
Home improvements and electronics <$10.000
Collaborates with online merchants directly
POS lending solution offering 1-12 month payment options
SlicePay is a deferred payment solution for college students that can be used for purchases in online and offline stores
An online payment gateway, iterated its business into BNPL play
An interest free, pay in 4 installments payment solution
BNPL solution with 2 interest-free options: Split payments in 3 and pay over 2 months or Split payments in 6 and pay over 5 months
Offline Brighte offers installment-based payment offering for home improvement of up to $30,0000, payable over 6 months to 5 years, interest free
installment
loans POS lending tool for merchants to offer in-store financing options to customers using any device
Lease-to-own POS lending solution for furniture, appliances, electronics, etc. Customer needs to get pre-approved
1. where there is an outstanding balance McKinsey & Company 13

Agenda
Opportunity
Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

Consumers and Merchants face hurdles identified across their
experience in payments journey
Consumer pain points Merchant pain points
Lack of disposable income leading to

inability to afford expensive/ luxury items
Alternative payment methods come

with several hurdles e.g., credit checks,
low credit limits, added costs etc.
High consumer cart abandonment

(i.e., low conversion rates)
Stunted business growth

A BNPL platform would enable improved access to financing for
consumers and contribute to retailer sales
Consumers Retailers Financial institutions

Easy access to borrowed Sales boost through higher Introduces new revenue
funds for underbanked affordability of products stream
segments Unlocking customer base of Enables serving the
Enhanced affordability of “Thin” creditors with unbanked customer base
“big ticket” items growing purchasing power Mitigates credit risk through
Reduced financing cost but limited credit history co-lending with other
Gradual build up of credit Access to data and insights institutions
history on customer spending Provides opportunity to cross
power and behaviors sell other products

BNPL fintechs are attracting record VC
investment globally in 2021
XX% Estimated percentage of total North America Asia Europe RoW

fintech funding3
Global VC investment2 in BNPL companies Top BNPL companies by VC

EUR billion funding raised in 2021
3.6 €1.4 bn
0.1
€170 mn
+52% p.a.
2.2
0.3
2.0
€165 mn
1.7
1.0 1.0 0.6

0.9 €1114 mn
0.1 1.1
0.3
0.5
0.1
0.4 0.4
0.8 €110 mn
0.3 0.4 0.5 0.4
2016 17 18 19 20 2021 YTD1 €105 mn
1.5% 4.5%
1.
2.
As of Q321
Does not include IPO, debt and other non-VC funding resources
€954 mn
3. Based on Fintech Index -newly developing asset of Fintech team used to estimate funding share of fintech sectors
4. US Dollar to Euro conversion May 18, 2022
Source: McKinsey Panorama Fintech, Dealroom.co McKinsey & Company 17

Payments made through BNPL are expected to
grow by ~50% annually to reach ~30bn$ by 2027
across selected MENA countries
KSA UAE Egypt Turkey South Africa
BNPL payments projected sales1, Bn$, Insights

The BNPL payment
adoption is expected
2022-27 CAGR,
%
to grow steadily in the
+51% p.a.
30
region over the
4 42% forecast period,
recording a CAGR of
46%
12 ~50% during 2022-
56% 2027
4 UAE is deemed to
73%
4 7 represent over ~30%
1
2 48%
of BNPL payments
0 0 3
0 across selected
2022 2027
countries by 2027
1. Includes UAE, KSA, Egypt, Turkey, South Africa
Source: Research and markets, FIS GPR 2022, McKinsey analysis McKinsey & Company 18
There are 2 Merchant-led and 2 Customer-led architypes of BNPL
business models
Deep-Dive next Merchant-led verticals Consumer-led verticals
Vertical focused Off-card financing Create an integrated Card-linked

large-ticket plays solutions shopping app installment offerings
Description Integrating directly Leverage merchant gateway Systematic ecosystem play Build “pay later” for own
into the merchant’s integration to rapidly scale covering both consumers customers (card or mobile
shopping journey, and affiliated merchants to wallet), e.g., via digital
often bespoke for large drive customer privacy and wallet, gradually building
merchants and engagement, with path to full capabilities starting with
standardized via APIs for banking relationship good credit segments to
medium merchants eventually offer instalments
at purchase at any merchant
Examples
(planned)
Source: Web search, McKinsey article, expert input McKinsey & Company 19
Klarna, a point of sale payment and lending solution, is currently
Europe’s most valuable Fintech
International example
Klarna at a glance Core proposition elements Key data

Launched in Pay later as the Revenue, Mn USD
signature product
2005 +35% p.a.
1,270
923
Present in 2 options: pay later 517 689
with 14 days interest
17 free or get credit for 6-
countries 24 months 2017 18 19 2020
Valuation, Bn USD
1Mn
trxns. per +110% p.a. 49.0
day
5.5 10.7
2.5
2017 19 20 2021
Source: Press search McKinsey & Company 20

Tabby, first BNPL Middle East provider
UAE and KSA example
Tabby at a glance Core proposition elements Key data

Launched in Pay later as the Funding, Mn USD
signature product
2019
+273% p.a. 104
Present in 2 Split payments in 4 50
countries 30
interest-free payments 2
(UAE and 2019 20 21 2022
KSA) 1
Earn cashback by
19 Investors
+1.1Mn shopping from Tabby’s
Users merchants
+3000
Merchants
1. Plans to expand to NA(Egypt)
Source: Press
Tabby search
website, press releases, web research McKinsey & Company 21
Tamara, the biggest BNPL player in KSA
GCC (KSA, UAE and Kuwait focused) example
Tamara at a glance Core proposition elements Key data

Launched in Pay later as the Funding, Mn USD
signature product
2020 110
Present in 3 2 interest-free options: 6

countries  Split payments in 3 Seed Series A
(KSA, UAE and pay over 2 months
and Kuwait)  Split payments in 6 9 Investors
and pay over 5 months
+2Mn
Users Shariyah Islamic
certification1
+2000
Merchants
1. Adherence with the Islamic Shariyah rules and regulations; don’t have to pay any interest or fee for using it
Source: Tamara website, press releases, web research McKinsey & Company 22
ValU, EFG Hermes Finance consumer financing solutions arm
Egypt example
ValU at a glance Core proposition elements Key data

Launched in Pay later as the Revenue, Mn USD1
signature product
2017
+343% p.a.
6
Option to split
payments in 3 months 1
Egypt and up to 36 months
2019 2020
3 largest non-bank BNPL in Egypt with
a market share of 11.3%
~200K
Users Investors
Amazon will acquire US$10 million in

+1400 EFG Hermes global depository receipts
Merchants (GDRs) with the option to replace that
investment into valU at a later date.
1. Egyptian Pound to US Dollar conversion (May 18, 2022)
Source: Valu website, EFG Hermes 2020 financial report, press releases, web research McKinsey & Company 23
The are 2 architypes that are highly relevant for MENA, particularly
for Banks and Fintechs
Relevant for MENA
Vertical focused large- Off-card financing Create an integrated Card-linked installment

ticket plays solutions shopping app offerings
What you need Usually category specialists; Often Legacy financing providers Largest players are building scale and Fintechs like SplitIt;
to believe in e.g., CareCredit in healthcare and either modernizing their platforms or engagement with an aspiration to
Network-offered solutions in pilot
GreenSky in home improvement licensing the technology platforms become a “super app”
stages, e.g., Visa Installments
from new software-as-a-service-based
E.g., TMall or Ant Group, that offer
players Co-branded or narrowly targeted
shopping, payments, financing, and
merchant partnerships, e.g., Chase and
banking products in a single platform
Citi have with Amazon
What  Access to captive B2C  Credit risk capabilities  Credit risk capabilities  Access to captive B2C customer
capabilities you customer base  Access to merchant networks  Access to merchant networks base
need to have  Credit risk capabilities  Access to captive B2C customer  Credit risk capabilities
 Access to balance base  Access to merchant networks
sheet/capital  Access to wallet/card-offerings
 Access to merchant  Access to balance sheet/capital
networks
Incumbent Banks with relationships with Online retail: Gateways Fintech Startups trying to disrupt the Bank that have existing card and wallet
profile for the large retailers entire market programs
Offline transactions: Acquirers
market-entry In partnership with BNPL fintech that
Digital wallet providers and other
startups
want to scale fast
Potential
Players

There are several key success factors that we observe in
global and local Fintechs focused around 3 verticals
1 Each successful example STC Pay aimed for rapid growth at the expense of profitability. They spent USD
has its own unique value $35m in marketing per year focusing only on international remittance and payments,
proposition and a growth in return they have suffered losses since inception, but achieved >1bn USD valuation
faster than average
story
Paycell aimed for profitable and sustainable growth from early on, which required
much less funding. Paycell built payment, lending, merchant businesses and utilized
low-cost telco products in loyalty
2 Standalone companies Separate entity & expedited decision making, while ensuring close link with
with dedicated resources mothership is key
that have fintech Differentiated career progress and incentives for leading talent with diverse
expertise, operating in an background in financial services, start-up and digital are in place
agile way Organization is structured around strategic priorities and working with agile practices
3 In-house tech stack Deliberate and proactive decision on build vs. buy vs. partner is crucial
enriched with the right Fintech-specific tech stack is important to have for a seamless digital experience for
partnerships customers

Several incumbents are seeking exposure to the space and need
balance profitable growth with risks
Key considerations for

Challenge Description and examples Incumbents
Long route to profit Leaders unprofitable - investing in customer / merchant growth Use customer base and credit risk
(including exposure to e.g., Klama loss-making after 15 years due to re-investment in capabilities to build scale and
high credit risk customers) growth and creation of "e-commerce ecosystem" reduce credit losses
Intense competition Winner-takes-all dynamic: network effects prevail; Target existing CCB relationships\
customers and merchants can only manage limited number Of Leverage customer base and data
payment options to create merchant growth
With increasing popularity, credit card players and other lenders, proposition
may increase their propositions Integrate into existing customer
E.g., Boohoo UK offers 13 payment options, of which 4 BNPL channels
Regulation Light/ no industry regulation, e.g., Australia created code Of Banks' entrance likely to
practice in 2021 accelerate regulation
E.g., BNPL businesses in Saudi Arabia required a permit to Leverage regulatory risk
operate management capabilities
Reputation/ brand Legacy bank brands may not appeal to target customers (e.g., Consider new product or business
evolution reputation for •unfair' credit card pricing) branding
Emphasize responsible lending
1. Includes late fee notice, spend limits, min age (18)
Source: Company presentations, press search McKinsey & Company 26

Agenda
Opportunity
Value Proposition
• Customer Research
• Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

We conducted the customer analysis through four step process
D. Identification of
A. Definition of roles in B. Quantitative analysis C. Quantitative analysis Consumer/ Merchant
BNPL eco-system on consumers on merchants pain points
Identification of roles in a Survey conducted for 6000+ Merchant qualitative analysis Identification of relevant pain
BNPL lifecycle including: respondents across the globe performed based on 6 points for consumers/
 Consumers on diverse range of BNPL categories, gathering data merchants resulting in
 Merchants users from 60+ respondents increased use of BNPL
 BNPL-Providers/Lenders Results captured on top 7 features/capabilities Leverage insights from
Deep-dive into the emerging reasons for consumers to mentioned for participants to surveys/interviews to recognize
trends/examples arising with use BNPL rate on a scale of 1-6 resulting pain points
incumbents

Buy now pay later is a form of
POS lending creating a transaction between
customers, merchants, and BNPL providers
Consumer gets immediate Key characteristics of BNPL

access to their goods or services
POS Lending
Available as a POS option, with increasing
presence in SKU1 page and advertising
Consumer
Installment Payments
Consumer buys and Consumer repays the
receives goods or provider for their Payments are deferred (e.g. in installments), with
services from a merchant purchase over time flexibly to pay off debt earlier as required.
Customers get immediate access to the goods or
services purchased
The BNPL
Model
Omnichannel experience
Online or in a physical store using an app
(QR code)
Buy now pay
Merchant later provider
Limited credit checking
BNPL providers typically perform limited credit
checks relative to traditional credit products and
Provider pays the merchant for the can therefore provide close to instant credit
purchase (minus merchant fees) approval at POS
1. Stock Keeping Unit
Source: McKInsey McKinsey & Company 30

Across the BNPL lifecycle, 3 critical roles drive
market movement
Users Customers Incumbent Emerging Trend

Digital attackers are more
involved in the Buy Now
Pay Later space
However, banks and
Consumer Merchant BNPL-Providers/Lenders financial institutions are
 Purchases goods and services  Offers the consumer goods and  Enters into an agreement with increasingly moving in
 Agrees to re-pay the amount services for purchase both consumers and merchants
to provide BNPL services as a
the space as BNPL is
paid by the provider over the  Receives costs of the product
stipulated period sold form the BNPL provider value-added element to their offered as added value
existing proposition offered to component
 Pays a commission fee for
merchants
each purchase made to the
BNPL provider  Compensates the merchant
for cost of goods sold
 Earns a commission from the
merchant by providing a service

We conducted a BNPL customer survey for diverse range of users
from the 5 largest BNPL forward countries in the world, including
6,000+ respondents1…
Overview Countries, Number of respondents (%)

The McKinsey Global BNPL Consumer
Survey was conducted in August 2020,
spanning over 5 countries (including Sweden,
Germany, Australia, UK, and the US)
Countries were selected because they were
20%
the most developed and forward in terms of
BNPL use 19%
15% 29%
Participants were asked several questions,
including, “Why did you choose to use buy
now, pay later? Select up to 3 of your top
reasons..”, with participants being given a list
of reasons to choose from
17%
1. Had used BNPL in the past 12 months
Source: McKinsey Global BNPL Consumer Survey (n=6,251), August 2020 McKinsey & Company 32
Consumers rank convenience as the top reason for choosing BNPL
in mature BNPL markets, while zero interest is still key in the UK
Properitory Mckinsey analysis, not for circulation Top 3 reasons <10% 10-19% 20-30% >30%
Top reasons for choosing BNPL1, % of respondents that have used BNPL in past 12 months and marked the reason as one of top 3 reasons
Overall
It is offered as a payment option by the retailer where I like to shop 36% 35% 27% 26% 18% 29%
Special offers/discounts are offered by retailers if I use buy now, pay later option 7% 12% 19% 14% 8% 12%
Zero interest 24% 26% 35% 44% 42% 33%
Lower fees (e.g., no late fees) 6% 14% 17% 11% 11% 12%
There is no credit check 3% 9% 14% 11% 8% 9%
It is convenient to use (e.g., I do not have to fill in an application, it is very quick and easy to pay) 44% 36% 29% 26% 34% 34%
Reached my credit card limit 2% 4% 9% 5% 4% 5%
Don’t want to incur interest costs associated with a credit card balance 11% 11% 19% 16% 19% 14%
Allows me to manage my cash flow and purchases (with one or multiple providers) 8% 15% 27% 30% 39% 23%
It allows easy integration with my card or other payment method 10% 9% 12% 8% 10% 10%
Allows me to afford bigger ticket items where I wouldn’t otherwise be able, 14% 27% 32% 30% 34% 27%
Don’t have a credit card 4% 8% 6% 4% 11% 7%

n = 1,246 n = 1,847 n = 921 n = 1,163 n = 1,074 n = 6,251
1. Q: Why did you choose to use buy now, pay later? Select up to 3 of your top reasons..
Source: McKinsey Global BNPL Consumer Survey (n=6,251), August 2020 McKinsey & Company 33
We conducted a BNPL merchant survey for 6 categories, gathering
data from 60+ respondents
Overview Scope
The McKinsey Merchant POS financing/ There were 7 features/capabilities that were presented
BNPL Survey was conducted in August 2021 to participants to rate, including:
The survey targets merchants across 6 different Ability to white label the financing solution
categories including:
• Electronic and appliances Exclusivity
• Elective Medical and Veterinarian
PLCC/Co-brand marketing
• Travel, Vacation and Entertainment
• Apparel, footwear and accessories Integration across entire shopping journey
• Luxury Retail and Jewelry Greater analytics, insights, and data sharing
• Home Improvement
Operational support
Participants were asked to rate features or capabilities
that a provider could offer on a scale of 1-6 (with 6 Integration into rewards programs
being the most important)
Source: McKinsey Merchant POS Financing / BNPL Survey, N=64 as of August, 2021 McKinsey & Company 34
Integration across the entire shopping journey, greater analytics, and
superior servicing are key priorities for merchants across sectors
Most valuable attributes for merchants
Properitory Mckinsey analysis, not for circulation
Top 3 features/capabilities
% of merchants who selected 5 or 6 (most important) for a given decision factor when choosing POS Lending / BNPL solutions1,
Percent of respondents
Ability to white Integration Greater

label the PLCC/ across entire analytics, Integration into
financing Co-brand shopping insights, and Operational rewards
solution Exclusivity marketing journey data sharing support programs
Electronics & Appliances 33% 17% 33% 83% 67% 83% 17%
Elective Medical and Veterinarian 33% 22% 33% 33% 78% 44% 33%
Travel, Vacation and Entertainment 45% 10% 10% 80% 80% 70% 80%
Apparel, footwear and accessories 18% 18% 18% 91% 91% 91% 36%
Luxury Retail and Jewelry 19% 19% 25% 44% 63% 44% 31%
Home improvement 25% 25% 25% 75% 50% 75% 25%
Overall 19% 28% 63% 67% 59% 34% 27%
1. Q: Please rate the following features or capabilities that a provider could offer from 1-6, with 6 being the most important:
Source: McKinsey Merchant POS Financing / BNPL Survey, N=64 as of August, 2021 McKinsey & Company 35
Some key insights emerge for
why consumers and
merchants use BNPL
Based on the survey the top Based on the survey the top
reasons consumers use features/capabilities
BNPL are: merchants use BNPL for are:
Integration across
Convenience entire shopping
journey
Consumers Merchants Greater analytics,

Zero interest insights, and data
sharing
Payment option
Operational support
at shops

We identified the typical purchasing journey for a consumer when
using existing payment methods
1 2 3 4 5
Existing A customer Consumer Consumer In some If the transaction

Customer decides to reaches point of selects credit instances, goes not go
Journey purchase a sale either card/debit card consumers may through,
product physically or as their chosen have the consumers may
online and select payment method transaction try an alternative
payment options rejected if their credit card/ debit
which could limit has card, or may
include exceeded, or if abandon the cart
credit/debit card, they have altogether
bank transfer, insufficient
or COD funds in their
account

As a result of our analysis we identified a
number of pain points for consumers
resulting in increased use of BNPL
Categories Pain Points I wanted a bag and it was in promotion..but I

was $50 short so I bought it using AfterPay. I
Economics Lack of disposable income resulting in delaying purchases paid in four installments and I didn’t have to
pay any extra. I was paid fortnightly for my
job so I could pay it easily
Inability to afford luxury items due to limited income
18-24 year old, Male
Alternative Numerous credit checks including paperwork for issuance of I have purchased some more expensive
payment credit cards items I probably wouldn’t have if I had to pay
all the money at the same time
methods
Pay added costs (e.g., joining fees, and annual fees) for credit cards 36-54, Female
I have used this for expensive items we need

QR/credit cards may not be accepted at all retailers limiting purchases for our home. It has been really convenient
because these are expensive items we
needed without notice and I could get them
Low credit limits assigned, limiting purchasing power straight away without being late for other bills
30-35 Female
Customer Difficult to use banking apps that do not have a developed
experience customer interface It gives me flexibility to pay back and if it’s
interest free, why would I use my credit
card?
36-45 Male

As a result of our analysis we identified a
number of pain points for merchants
resulting in increased use of BNPL
Categories Pain Points

Economics Increased delay in receiving payments from alternative channels
Difficulty tracking payments and book-keeping when payments I tend to spend more when using
received through alternate methods due to delay BNPL, compared to when I use other
methods of payment
Customer Inability to grow customer base as several consumers have inability

outreach to afford products
I have bought items for full price using
BNPL, which would originally have
Limited growth of business due to limited customer base only bought on sale without BNPL
Customer High consumer cart abandonment resulting in low conversion

I have used BNPL even when I had
experience rates
sufficient money to pay for the product
outright

We identified the typical user journey for a consumer using the
BNPL platform where several pain points are resolved
Points in consumer journey, where pain points resolved through BNPL
1 2 3 4 5 6 7 8
New A customer Consumer Consumer In some The BNPL Upon approval The Customer The customer
Customer decides to reaches point selects BNPL as instances, provider then the BNPL retrieves their then pays the
purchase a of sale either their chosen consumers may conducts a soft service provider purchased BNPL provider
Journey
product physically or payment method fill out a short credit check to registers the goods, either in- as per the
online and and select application assess if the transaction and store or upon agreed
select payment either Pay in 4, form customer is credits the delivery installments
options which Pay in 14 days, eligible for BNPL merchant and term
could include or take a short-
credit/debit card term loan
bank transfer
or BNPL
Pain points QR/credit cards Difficult to use Numerous Low credit Lack of
addressed may not be banking apps credit checks limits assigned disposable
accepted at all that do not have including for credit cards, income resulting
retailers limiting a developed paperwork for limiting in delaying
purchases customer issuance of purchasing purchases
interface credit cards power
Agenda
Opportunity
Value Proposition
• Customer Research
• Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

Consumers and Merchants face hurdles ... but what if there
identified across their experience in was a way to create
payments journey… a tech solution that
C Consumer pain points M Merchant pain points benefits both
C Inability to afford luxury items Consumers and
Merchants such as
C Pay added costs for credit cards BNPL service?
Numerous credit checks including paperwork for
C
issuance of credit cards
C Lower credit limits with alternative payment methods
M C Difficulty tracking credit payments and book-keeping
M Limited ability to grow the business or customer base
M Consumer cart abandonment
M Delay in receiving payments

BNPL combines advantages of credit card and
other payment options
POS Lending
BNPL solutions Credit card lending
Key Invoice or installment based deferred Deferred payment solution with a bill
solutions payment, with flexible repayment scheme generated at the end of the month; BNPL is an invoice
fixed repayment
or installment based
User “One-click“ payment Typically requires entry of credit card solution that
experience details provides a better
Flexible payment options (invoice Limited deferred payment flexibility customer experience
or installments) compared to a
Extremely simple onboarding Lengthy credit card onboarding traditional credit
process process
card
Emerging Interest bearing consumer loans Installments from credit card companies
Offerings Different forms of credit card
based solutions
Source: Team Analysis McKinsey & Company 43

A BNPL platform can be accessed directly or
through vendor platform and enable financing
through partners in minutes
3rd party data Key platform features

Customers Consumer finance platform sources
Accessible marketing
with one-click access to the
Traditional
application form through
5 Instalments ($) Credit-scoring advanced analytics retail partner POS or native
Banks
Consumers
Credit bureau
platform
Partner network with payment providers

Applicant Pre-approval within 60
4 Goods/ 1 Purchase
Data seconds with fully digital
services order Non-traditional onboarding
Request for Telecom
2 financing
Marketing/ sales team Flexible options
Browser
Capital provider change payment schedule
Social networks
(date, amount of payment,
Retail eCommerce Seed funding Partnership Transaction
stores platforms 3 Cash with tradi- loan term)
Credit score/ AMG capital tional bank
approval Multiple funding partners
Customer value levers (Multiple bank underwriting
Transparent fees Simplified credit experience Flexible payment terms No traditional credit history required to spread credit risk)

We mapped Consumer and Merchant pain points to solutions to
bring out potential features in BNPL solution
C Value for Consumers M Value for Merchants
From (current key challenges/pain points) To (value proposition of BNPL service)

Economics Lack of disposable income resulting in delaying C Paying in instalments Pay amount due in instalments within a stipulated time period
purchases
Inability to afford luxury items due to limited income
Difficulty tracking payments and book-keeping when M Receive full payments Merchant receives payment at the time of purchase after a consumer
payments received through alternate methods due to delay immediately risk scoring without having to worry about fraudulent payments.
Increased delay in receiving payments from alternative M Integrated payments Manage all services, payments through one integrated system
channels system
Alternative Numerous credit checks including paperwork for M C Instant credit checks Developed risk engine integrated at bank end with banking/credit
payment issuance of credit cards bureau database scores consumer profiles
methods
Pay added costs (e.g., joining fees, and annual fees) for C Easy interest-free Interest-free short-term finance:
credit cards payments limit free
QR/credit cards may not be accepted at all retailers structured repayments
limiting purchases offering minimal or 0% interest rate
Customer Low credit limits assigned, limiting purchasing power M Improved Customer Increased trust and loyalty between consumer and merchant due to
outreach Engagement transparent, interest-free financing option
Inability to grow customer base as several consumers
have inability to afford products
Limited growth of business due to limited customer base
Customer Difficult to use banking apps that do not have a C User-friendly customer Easy to use user-interface with BNPL presence in the consumer
experience developed customer interface interface shopping journey prior to checkout
High consumer cart abandonment resulting in low M C Efficient Check-out Easy and convenient, check-out process with zero additional steps to
conversion rates get an installment plan
Source: Team analysis, expert input McKinsey & Company 45

A successful BNPL payer would have a value proposition focused on
10 main features offered to consumers …
R Retailer T Telco B Bank

Services to consumers
R T Efficient Check- Easy and convenient, check-out process with R T Consumer app Add products/payment platforms to meet needs of
out zero additional steps to get an installment plan & profile all customer segments
B
R Consumer Presence in the consumer shopping journey B Payment Enable a variety of payment options (i.e., debit
journey prior to checkout options card, credit card, Pay in4, pay in 14 days, etc.)
presence
R T One-click easy Payments as simple and easy as card payment R T Interest-free Interest-free short-term finance, structured
payments on the merchant’s platform or store repayments offering minimal or 0% interest rate
B B
R T Integrated Possibility to shop online (without integrating R Deals and Get special offers and deals that can be used
omnichannel with the merchant) and offline (using BNPL offers against purchases
presence app)
R T Simplified Instant approval of installment plan due to R T Reward and Get points for your spend and redeem the points
Process simplified customer journey (introduction of an ID cash back against purchases
B B
and phone number

… and 6 main features of merchants
R Retailer T Telco B Bank
Services to merchants
R T Easy Rapid registration, ease of merchant's R T Merchant Merchant app to manage all services,
Onboarding registrations Dashboard POS, with marketing materials library
B provided
R T Simple Easy and Quick set-up to connect to R T Seamless Products can be purchased using POS
Integration the service and full launch support, online and solutions and websites/apps
B rapidly integrating into existing offline
infrastructure experience Ready-to-use checkout (turnkey solution),
including order placement, selection of
delivery and payment method
R T Improved Increased trust and loyalty between R T Protection Merchant receives payment at the time of
Customer consumer and merchant due to from fraud purchase after a customer risk scoring,
B Engagement providing simpler financing options B and payment and don’t have to worry about fraudulent
delinquency payments
Fewer lost customers and increase in
conversion on platform

There are several additional services that are
offered by providers apart from the core BNPL
proposition
Non-exhaustive
Types of additional
services Description
Consumer Spend tracking List of current and past purchases Dependent on the
Finance management Payment reminders for upcoming anticipated payments provider a number of
Wishlist Offering price change tracking across all stores
these additional services
may be offered free of
Pre-selected option For returning customers with predictable behavior
(machine learning (used by 75% customers)) charge e.g., Klarna
Loans With a maturity of 3–36 months (for regular customers
offers Order
only usually) management and On-
Virtual one-time card One-time card issued; card parameters copied to be site messages to
used at checkout merchants
Merchant Order management Integrated with merchant systems and collects required
information
Customer experience Managing on-site messages for provider progression to
management checkout on merchant website
Marketing Support Marketing materials library including lending pages, e-
mail messages, and social media ads
Source: Company websites, expert material McKinsey & Company 48

Success in the PoS lending / BNPL space relies on several factors
For Consumers For merchants For BNPL provider
• Distinctive in-app experience and • Creating a distinctive digital checkout • New fraud and risk models that can
journeys to drive engagement (e.g., payments (with instant decisioning, underwrite at a transaction level and
transaction specific paydowns, in-store fraud checks, real-time debit pings) and potentially, without bureau data
card additions, gamification) application experience that is
• Newer economics models including
comparable to leading Fintechs
• In-app merchant marketplace to affiliate marketing fees for merchants,
enable customers to shop for deals and • Pre-Integrating with shopping carts, reinstatement fees for consumers etc.
offers (and earn affiliate marketing existing gateway providers and other
• Up-sell and Cross-sell strategy that
revenues) leading digital storefront players to allow
can enhance profitability for the core
for accelerated deployments
• Enhanced features including rewards product
and membership-based programs to • Creating a brand that merchants see
• Ability to leverage existing scale and
help drive repeat purchases and affinity as “brand adjacent” and appealing to
access to drive traffic for merchants and
their consumers
enlist new merchants to sign up
• Creating consumer scale that can be
leveraged in merchant negotiations
• Creating digital self-signup models
for digital SMBs to help augment
margin pressure from Enterprise
merchants

The right to win for incumbents can be assessed along 5
capabilities, which indicate a strong position for banks
New Fraud and Risk Access to balance sheet/ Ability to leverage existing
Models capital to fund scale and network access
Ability to conduct instant credit Access to sufficient balance Allows the incumbent to drive
checks, and underwrite at a sheet to support traffic for merchants and enlist
transaction level potentially, build/acquisition operations as new merchants to sign up
without bureau data part of setting up the BNPL
platform/partnerships
Ability to leverage existing captive Up-sell and Cross-sell strategy

customer base
Allows the incumbent to offer BNPL and Portfolio that can be integrated within
other cross-selling products to a captive the BNPL/retail lending eco-system and
base that will drive customer lifetime enhance profitability for the core product
value e.g., integrated marketplace, wallet etc.
Agenda
Opportunity
Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

Future vision – BNPL Platform
and third-party flow
BNPL Platform 1/2
1 2 3
Steps
User logs in and lands on home page User checks upcoming payment User checks if shop they have in mind
schedule is on platfrom
Envisioned experience

BNPL Platform 2/2
4 5
Steps
User see’s that there is an exclusive User goes to 3rd party to shop
offer at shop of choice

BNPL integrated onto 3rd party website (1/2)
1 2 3
Steps
User lands on third-party website Navigates to product of choice See’s that there is an option to buy
now and pay later. Clicks to read more

BNPL integrated onto 3rd party website (2/2)
4 5 6
Steps
Adds products to basket and selects See’s that there is also an opportunity Selects standard 4 instalments and
easy pay as payment option to extend the instalment period for a checks out. See’s payment schedule
small fee on confirmation page

Agenda
Opportunity
Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

Recap: There are several key success factors that we observe in
global and local Fintechs focused around 3 verticals
1 Each successful example STC Pay aimed for rapid growth at the expense of profitability. They spent USD
has its own unique value $35m in marketing per year focusing only on international remittance and payments,
proposition and a growth in return they have suffered losses since inception, but achieved >1bn USD valuation
faster than average
story
Paycell aimed for profitable and sustainable growth from early on, which required
much less funding. Paycell built payment, lending, merchant businesses and utilized
low-cost telco products in loyalty
2 Standalone companies Separate entity & expedited decision making, while ensuring close link with
with dedicated resources mothership is key
that have fintech Differentiated career progress and incentives for leading talent with diverse
expertise, operating in an background in financial services, start-up and digital are in place
agile way Organization is structured around strategic priorities and working with agile practices
3 In-house tech stack Deliberate and proactive decision on build vs. buy vs. partner is crucial
enriched with the right Fintech-specific tech stack is important to have for a seamless digital experience for
partnerships customers

Across the 4 market-entry options identified several capabilities
will need to be developed/leveraged by a new player
GCC Centric Developed by new entrant Potentially leveraged from new player Leveraged from existing player
2 Partnership
1 Buy 2A White label 2B Light Build1 3 Build
Customer Base
Channel
partner Merchant Base Acquired from existing player in Brought to partnership by
space i.e., Bank, Telco, Retailer etc. existing player/platform in market
Risk Engine Acquired from white label platform

company e.g., Codebase Technology
Front-end Technology
Technology (i.e., merchant portal)
Back-end Technology
(i.e., customer journey)
Presence Brand
Balance Sheet Brought to partnership by

Finances investor/new entrant
Examples
bought
(UAE centric)
1. Includes another play, where a bank may partner with an existing fintech, thereby only bringing the balance sheet to the partnership

5 capabilities are required to deliver this BNPL offering – [Client]
already has an edge in the access to merchants
Capability fully in place Capability partly developed, requiring upgrade Capability not developed
Capability required Description [Client’s] position

Instant credit decisioning Ability to complete fraud check and credit decision in < 60 seconds using Existing credit decision
(underwriting and fraud) multiple data sources, returning the decision back to POS and establish a engines able to score own
new customer relationship customers with low latency –
NTB not available
Merchant OMS/cart Integration with a merchant partner’s digital site, to show BNPL offer on the Integration with physical and
integration - sign up flow shopping page, integrate the sign-up/payments flow in the check-out cart, online merchants through
and to receive relevant data for fraud decisions payments gateway
Account servicing and App that allows customer to perform servicing operation (e.g., make a Capable of engaging
customer engagement app payment, look at returns) as well as continues to keep the customer customer across touchpoints,
engaged (e.g., through a shopping app that directs consumers to other integrating external offerings
retailers in the BNPL provider’s network) – required to extend
capabilities
Financing and Pricing Overall financing infrastructure for the POS business (e.g., synthetic P&L, General capabilities exist,
capabilities pricing, MDR pricing, co-marketing budgets) and ability to evolve it over time adaptation to BNPL business
as the operating model/business economics mature and stabilize required
Access to merchants Sizeable merchant base to deploy BNPL proposition and deal team to Large merchant base and
aggressively pursue new partnerships merchant acquisition team
being assembled
In addition, CLIENT can take advantage of its large individual customer base and ability to take the balance sheet risk to maximize revenue potential
Across the 4 market-entry options banks have the widest range of
opportunity available
GCC Centric
2 Partnership
1 Buy 2A White label 2B Light Build1 3 Build
Potential Incumbent Bank Retailer Bank Bank

Profile Payment player Telco player
Rationale for why Ability to expand Players with a captive merchant Tie up with BNPL fintech to get Offer balance sheet and
incumbent profile is existing consumer base and customer footfall access to lending engine, lending expertise to develop
most suitable lending business (they can unlock and drive technology stack, and brand since the core BNPL business
incremental revenue) this is a new line of business for them
Digital business Competitive threat to
building is difficult due Can offer up balance sheet to lend business so greater
to lack of internal from added merchant base incentive to get involved
talent, thus easier to buy Ability to drive deep integration with Captive merchant base and
Have ability to deploy existing platforms, i.e. BNPL at customer base to grow
large capital point-of-sale terminals / during bill top- business
ups and recharges
Time to market ~2-4 months for DD and 1-2 months for tech integration 4-6 months 9-12 months (including 6-9
term sheet preparation and launch months for risk engine
development)
Examples of potential
incumbents in GCC
1. Includes another play, where a bank may partner with an existing fintech, thereby only bringing the balance sheet to the partnership
Source: Expert input McKinsey & Company 61

1: Multiple players have entered the regional market and raised
successful funding rounds with tabby and tamara leading
UAE Centric
Valuation, USD Mn3
Total Funding received, USD Mn
600 400 140-160 110-130 20 5-72 Other players include:
186.0
22,0001
116.0
45.0 1,5001
35.0
2.1
500
1. Established publicly listed companies with BNPL vertical, so no separate valuation available
2. Team estimation based on funding multiple
3. As of total funding round
Source: Crunchbase, Reuters, Bloomberg, Press Search, team analysis, Dealroom McKinsey & Company 62
1: We defined a 1 Value • Do one or more of the products of the company enhance POS
financing/retail lending value proposition?
Proposition
4 criteria
matrix to 2 Technology  Does the company own cutting edge technology (e.g., Open
evaluate APIs , cloud-based solutions)
 Which assessment model does the company employ? (e.g., soft
players for check for invoicing and installments or no credit checks prior to
acquisition applying)
 Does the model fit in with the strategy outlined for the platform?
3 Partnerships  Does the company have a reliable track record in partnerships?

(if not, are there any other grounds for trust)?
 Can we confirm that the current partnerships do not conflict with
our business?
4 Valuation  Will the market value of the company be feasible to acquire?

1: We identified 3 potential players for acquisition based on a 4
criteria assessment
GCC Centric Suitable to invest Further evaluation needed Unsuitable for investment xx Recommended
xx
Value • Typical BNPL • Typical BNPL • Typical BNPL • Typical BNPL • Typical BNPL • Primarily • Offers • Typical BNPL • Primarily
Propo- offering offering offering offering offering focused on international offering focused on
banking shipment banking
sition • Includes • Includes • Includes • Includes • Includes
products, with
• Includes
products, with
shopping online shopping online shopping online shopping online shopping online • Typical BNPL shopping online
BNPL being one BNPL being one
offering
vertical vertical
Techno- • Integrates • Uses 20 technol • Only BNPL in • Advanced • Integration of • Information not • Readymade • Maintain/enhanc • Leverage
logy directly into ogy products region collecting technology user-facing available plugins available e systems using technology from
merchant and services data such as accesses credit elements for e-commerce open-source banking back-
checkouts Emirates IDs risk developed by platforms technologies end
• More • More front-end
information information developers
required required
Partner- • Leverages • Leverages E- • Strategic • Strategic • Strategic • Partnerships • No strategic • No Strategic • Partnerships
ships white-label commerce platfo partnership with partnership with partnership with exist to enable partnerships partnership with several
solution with US rm that powers Mashreq CBD ADIB one community exist exists platforms in the
player online stores currently, i.e., region, including
• Available to all
through Pakistan Careem etc.
e-tailers
partnerships
Valua- • Valuation >$0.5 • Valuation <$0.5 • Valuation <$0.1 • Valuation <$0.1 • Valuation <$0.1 • Valuation <$1 • Valuation >$1 • Valuation >$1 • Valuation >$1
tion1 Bn Bn Bn Bn Bn Bn Bn Bn Bn
• Series B • Series A • Easily • Easily • Corporate • Easily • Not available for • Not available for • Not available for
Acquirable Acquirable Round Acquirable separate BNPL separate BNPL separate BNPL
• Higher valuation
vertical vertical vertical
than series B • Series A
1. Acquisition budget considered to be max $300 Mn
Source: McKinsey Payments Practice McKinsey & Company 64

1: UAE BNPL Players (1/3)
GCC Centric xx Recommended xx Employee count xx Merchant count xx Total Funding, USD Mn xx Valuation, USD Mn
Description Provider of buy now pay later services online and Buy-now and pay-later financial platform designed Instant payment and digital finance solution offering
offline across the UAE and Saudi Arabia to empower people to buy and shop in a transparent buy now pay later options and payments
way management
Value Products include for both online and in-store Products include: Products include:
Proposition shopping:  Shop online  Shop Online (pay in 3 installments, postpone
 Split in 4 (Split into 4 equal payments billed every  Pay in-store (pay 30 days later payment to 14 days, or finance up to 12 months)
month at no interest, pay in 4)
 Pay online (split what you owe into three easy  Shop in-store (Select your favorite items in-store
 Pay in 14 (Skip paying upfront and complete your (interest-free) payments) and scan the cashew QR code at checkout)
purchase within 14 days)
 Manage payments  Subscribe (Start a subscription to your favorite
Operates a cashback program when you shop from products or services, hassle-free)
Operates a loyalty reward system that allows users
tabby at partnering cashback stores. Cashback is
to earn discounts on referring a friend Offers payment at your own pace according to the
added into your account whether you pay with tabby or
not ticket size of purchase items
Technology  Soft check assessment for installments  Uses 20 technology products and services Only BNPL in the region collecting data such as
 Integrates directly into merchant checkouts including HTML5, Google Analytics, and jQuery, Emirates IDs and tying into banks to get more
and G2 Stack information to score better so that consumers who are
 Soft check assessment for installments likely to default will be rejected
Strategic partnership with Mashreq to integrate cashew

Partnerships  Integrate Splitit's installment payment platform  Leverages E-commerce platform that powers as payment option for NEOPAY merchants
through a white-label solution to allow merchants online stores through partnerships
to offer installments on credit cards
Presence ~70 ~3,000 186 600 121 1,000 116 400 <50 300-600 45 140-160
Source: Crunchbase, company websites, Press search McKinsey & Company 65

GCC Centric xx Recommended xx Employee count xx Merchant count xx Total Funding, USD Mn xx Valuation, USD Bn
Description An installment shopping app that lets you buy now A tech-enabled payments platform where anyone World’s first all-in-one stack delivery, payment and
and pay later in the UAE with no-interest fee and no can Shop Now and Pay Later with absolutely zero returns solution offered by a logistics and
hidden charges interest or cost transportation company
Products include: Products include: Products include:

Value
  Split in 4 (split your total purchase into 4 equal 
Proposition Shop Online Post-pay (shoppers get 14 days to pay)
instalments, with 25% paid up-front)
 Pay later (split their online payments into three  Part-pay (international shoppers pay some amount
equal parts , 33% paid upfront) The platform takes on all the fraud, chargeback and upfront, and get 14 days to pay the rest)
repayment risk, which is managed by their proprietary
predictive screening technology Offers international shipment, and [premium
packages e.g., Aramex priority delivery, customer
care and returns
Technology Advanced technology accesses credit risk following a  Integration of user-facing elements developed by Readymade plugins available for commo e-commerce
quick sign-up procedure front-end developers with server-side logic Code, platforms such as WooCommerce, Shopify, Magneto,
test and operate React Native/Django/Javascript OpenCart and APIs available for direct integration
based services
 Soft check for invoicing, installments
Partnerships Strategic partnership with CBD on several fronts, All e-tailers in the UAE can avail of this option, paying
including transaction banking, debt funding and e-  Strategic partnership with ADIB to provide an a transaction cost
commerce solutions innovative offering is the latest in a series of digital
product launches No identifiable strategic partnerships
Presence <50 300-600 35 110-130 <50 650 NA 20 16k NA 3001 1,500
1. Established publicly listed companies with BNPL vertical, so no separate funding available
GCC Centric xx Recommended xx Employee count xx Merchant count xx Total Funding, USD Mn xx Valuation, USD Bn
Description Re-imagining banking for migrants, bringing An easy payment service that allows customers to A digital bank provider of payments product for
essential financial services from their home and make purchases instantly and then pay for them in merchants, including issuing and merchant
host country on one platform. Putting migrants in 4 Automatic Instalments every 2 weeks, without any acquisition. Also providing BNPL services for visa
charge of their finances – seamlessly interest card holders at the points of sale
Value Products include: Products include: Products include:

Proposition  Bank Account  Shop Online (choose Afterpay as your payment  Quick Remit
 Insurance method at checkout)  Debit card (including BNPL)
 Investment  Shop in-store (Set up the Afterpay Card in the app,  MaxSaver
add to your digital wallet, and tap to pay with Apple
 Pay Later (include a one-time processing fee and  Loans
Pay, Google Pay, or Samsung Pay)
interest from 10 to 20 percent depending on the
buyer’s profile)  Pay Later (Pay it off over 6 weeks. Never pay
interest)
Technology  NA  Maintain/enhance systems & services using Kotlin,  Leverage technology, including card processing
Java, Python and related open-source and merchant acquiring systems, processing
technologies switches and PoS inventory to offer services to
merchants and consumers
Partnerships  Strategic partnership with HomesShopping.pk to  In a partnership spanning three years, Afterpay  Partnerships with Careem, Talabat, Shukran,
enable overseas Pakistanis to buy goods in and Dovetail have built the fastest growing eMax, Makemytrip etc.
Pakistan by making payments in installments in consumer technology platform in Australian history
their country of residence
Presence <50 NA 2.1 5-7 ~70 85k 4482 22,000 5001 52k1 NA 500
1. Team estimation based on valuation 2. Established publicly listed companies with BNPL vertical, so no separate funding available
2A: A White Label arrangement involves leveraging an established
merchant network and available BNPL API platform
A potential player in the market Potential players in

for BNPL has no merchant Commercial Eco-system
network or technological
architecture to create a platform
Lenders Retailers
In order to access existing New In order to access the

and new customers, the
Player risk engine and credit
new entrant Financial
assessment Banks
acquires/leverages an Institutions
capabilities, the entrant
already established
acquires a white label
merchant network The White
Label Model
Channel Payment
Partners Processors
Merchant BNPL API
Network Platform

2A: A number of white label solutions exist that can be assessed
based on 4 criteria
Non-exhaustive
GCC Centric
Date of Founding Q4 2020 Q1 2021 Q1 2021 20121
Market Presence
Technology SaaS: Open-API Payment as a Integrate the payment Installments as a

architecture that Platform: an API-driven form into your website Service for merchants,
allows integration with platform which with iFrame, and apply networks and issuers
legacy systems seamlessly drives your CSS to it via a single network
across all the logical multiple payment API
layers of the existing options for merchant
business architecture partners
Large anchor
clients
Mode of Charging Subscription-based Subscription-based Subscription-based N/A
(can be tailored if GMV
>AED 0.5 Mn)
1. Partnerships announced with tabby in Q2 2021, and with VISA in Q2 2022
Source: Press Search, Company websites McKinsey & Company 69

2A: The platform sits at the forefront of cutting-edge digital
payments with an Open-API architecture that enables a lossless,
intuitive customer experience
Omni-channel Instant credit Industry Grade

operability Decisioning Security
Our platform enables
automated backend
processing and frictionless
omni-channel operability with
a lossless, intuitive customer
experience.
Platform The platform is built on an
Legacy System
Integration Open-API architecture that
allows integration with legacy
systems across all the logical
layers of the existing business
Intuitive Automated architecture.
Modular rules
Customer backend
configuration
Experience processing

2A: The platform brings several functionalities and benefits
New-Age Credit Supercharged Credit- A powerful BNPL Range of products to

Checks Decisioning platform for every Lender offer beyond BNPL
 Analyzes a digital  Highly complex  Includes:  Platform can be
footprint in seconds to customer data is leveraged for:
 Neobanks and Challenger
determine a customer’s processed and decided
Banks  Credit Cards
creditworthiness upon at the touch of a
without relying on button  Retailer and Merchants  Personal Loans
credit agencies  Traditional Banks and  Vehicle Loans
 Creates a robust and
 Opens market to flexible BNPL offering Finance
 Mortgage Finance
customers with a poor with a differentiated retail  Fintech Lenders and Wallets
or non-existent finance solution  Merchant Onboarding
credit history

We have an end-to-end approach to build and scale a BNPL
business while developing in-house capabilities for our clients
Timelines beyond initial discovery may change based on initial discovery findings
Months 1 2 3 4 5 6 7 8 9
A Design the Concept sprint:

product Align on the BNPL
At the end of the detailed blueprint we will:
construct, product construct
operating including high-level 1. Have a detailed assessment of capabilities and a decision on which
model and user flows as well as ones we build vs. licenses (short list of providers)
business the verticals to
2. Align on the timeline for the product build based on the effort required
case pursue and develop
(Concept) the proforma P&L
Detailed blueprint: 2 Develop the product (originations and servicing)

Create the initial backlog
of features to be built, 3 Build credit underwriting and fraud capabilities
B Technology capabilities discovery Go-Live:
and product (e.g., underwriting, fraud), Support the launch
4 Build data capabilities
build tech discovery, vendor of the business with
(Build) discovery data discovery, the pilot client
5 Build tech capabilities
identifying and hiring the
right team, and creating
6 Establish operations (servicing and collections)
the business plan
C Business Merchant partnership: Begin cultivating the pipeline of potential merchant/ merchant aggregator partners,
Development identify the right pilot clients for the offering, set up business development org., provide negotiation support
(Boost) and pricing strategy, support closing and onboarding

Customer facing attributes Internal attributes
B Front-end/Back-end
3: In order to operating model
build
C License/
a BNPL regulatory
platform MVP, A MVP product
design &
evaluation
there are 7 Customer

different validation
D Risk engine and
attributes that Technology
architecture
need to be G Organization and
development
talent (including
under focus to merchant/custom
E Merchant
develop er-based team)
network
capabilities F Business case and
development/ac
quisition
marketing plan

3C: The regulatory landscape across the GCC is changing as BNPL
players focus on more consumer centric business models
GCC Centric
Considerations Emerging Regulatory Developments
Given that BNPL firms generally make money off October 2021:
merchant commissions and late fees, they have so far
The Saudi Central Bank decided that BNPL
avoided falling under strict credit laws
businesses in Saudi Arabia required a permit to
As the sector gains traction, it is now getting more operate
scrutiny from regional central banks
Regulations will not hamper the GCC population’s use February 2022:
of BNPL as there is a big gap in the market that is filled
The Central Bank of Bahrain issued amendments
by the proposition
to facilitate the entry of new financial innovative
Developments in this space will depend on whether companies such as BNPL into the market.
banks and payment service providers will partner with
such platforms
Current legalities for BNPL are still unclear
with no permit or license required, therefore,
existing credit laws can be leveraged

3D: Credit assessment capability is enabled by building an end-to-
end risk model by leveraging policy rules and advanced analytics
Model score
Step 1: Installment Step 3: Model Reason code

option Step 2: Policy rules scoring Step 4: Decision assignment
Decision Threshold bar
Accept
Rejection rules
Refer
Decline
An A set of hard-cut rules are Machine learning model Based on the value of the Main drivers of the model
installment applied to directly eliminate leverages application details, score and some fine-tuned are extracted to use an
option is very risky applications (under customer information and threshold cutoffs, the explainability framework and
selected on aged, already in default, other indicators to generate application is accepted, assign a reason code to the
the platform blacklisted customer,…) a likelihood of default score referred to manual previously assigned decision
evaluation or declined
The entire end-to-end process has an elapsed time of no more than 300ms

POS financing is offered across multiple verticals and provided by a
variety of players
Small ticket Mid-ticket Large ticket
Apparel, Home Electronics & Home Auto Repair Home Travel Healthcare Power Home
Beauty & Furnishings Appliances Fitness & Furniture & Sports & Improvement
Accessories Accessories Mattresses Equipment (including
Solar)
Targeted by integrated shopping apps Targeted by vertical specialists
Targeted by off-card financing, Rent-to-own, &

card-linked installments

3G: To build a successful MVP the client requires some anchor hires
to begin development
Anchor Hires
CEO
Chief Strategy Chief Digital &

Chief SME Chief Retail Chief Compliance Chief Financial Chief People
and Experience Operations Chief Risk Officer
Business Officer Business Officer Officer Officer Officer
Officer Officer
Partnerships Lending Analytics & CVM Technology Compliance Credit Risk Treasury HR Policy
Loyalty & Financial Crime Governance & Performance

Trade Finance Sales Software Factory Internal Control
Partnerships Risk Model Validation Management
Investment Mktg & Digital Contracts & Learning &

Product & Pricing Operational Risk Financial Control
Management Commercial . Transformation Agreements Development
Customer Budgeting & Recruitment &

Sales Operations Corporate Affairs
experience Planning Onboarding
Information HR Admin &

UI/UX Legal Tax
Security Communication
Innovation Security
Strategy

Agenda
Opportunity
Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

To enable positive EBITDA BNPL traditional revenue streams must
be coupled with ones from additional services
Revenue structure XX Share of total revenue Cost structure (xx) Entry mode
Revenue Costs
Revenue from additional

Core BNPL business CAPEX1 OPEX
services
~60% ~40%
Micro-credit Manpower, G&A, Cost of sales

~10% Infrastructure
Merchant fees Cost of risk
Advertising ~15%
Software license (White label) Manpower
~45%
Listing fees Marketing
~5-10%
Merchant acquisition (Light
build and white label) Advertising
Data ~3%
Late fees G&A
Acquisition of a new player
Interchange fee (Buy) Infrastructure
~15% ~1%
1. Capex structure depends on market entry option

The UAE market is expected to reach ~1Bn$ in revenues from core
BNPL business and additional services in the next 5 years
Full potential revenue from core BNPL and additional services, 2027, Mn$ E-commerce market size, 2022-27, Bn$
Core BNPL business

1,027
26 +23% p.a.
88 73
Revenues from core BNPL

business represent ~60% of 163
total revenue opportunity
112
11 26
157
470
Merchant Late Interchange Micro-credit Advertising Listing fees Data Total 2022 2027
fees payment fee monetization revenue
fees
# of BNPL players
in 2022 8
The Saudi market is expected to reach ~0.3Bn$ in revenues from
core BNPL business and additional services in the next 5 years
Core BNPL business

317
8 +11% p.a.
27 25

14
34
3
48
145
fees
# of BNPL players
in 2022 5
The Egyptian market is expected to reach ~0.3Bn$ in revenues from
Core BNPL business

340
9 +19% p.a.
29 18

37
4 8
52
156
fees
# of BNPL players
in 2022 4
South African market is expected to reach ~0.3Bn$ in revenues
from core BNPL business and additional services in the next 5 years
Core BNPL business

276
7 +19% p.a.
24 11

30
3
5
42
126
fees
# of BNPL players
in 2022 4
The Turkish market is expected to reach ~0.6Bn$ in revenues from
Core BNPL business

581
15 +25% p.a.
50 82

63
6 27
89
266
fees
# of BNPL players BNPL is an existing concept in Turkey due to various credit card/consumer loan products regulated by Central
in 2022 Bank. Yet, BNPL stays to be a grey area in the Turkish regulatory landscape
A bank entering the BNPL market organically in UAE could reach
110-120 Mn$ in revenue with ~25-30% EBITDA after 5 years
Page can be customized for other players and other countries Revenue Merchant fees Interchange fee Advertising
Late payment fees Micro-credit Data monetization
BNPL revenues and costs projection, 2022-2027, USD millions
117
54
59
28 27 18 1
6 16 13
16 9 6 19
0 9 5 9 10
4 3
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
CAPEX1 OPEX (without depreciation)
Total costs 13 13 23 34 50 86
Cost of sales - 2 4 8 13 26
Cost of risk - 1 3 5 8 16
Manpower 11 5 8 10 12 13
Marketing - 4 7 10 14 27
Advertising - - - - 1 1
G&A costs 2 1 1 1 2 2
Infrastructure <1 <1 <1 <1 <1 <1
EBITDA, % -123% -45% -20% 15% 27%
1. All costs taken to build the BNPL platform in initial years incl. manpower taken as CAPEX

A new player entering the BNPL landscape organically can raise and
expand its offering along 3 horizons
117
Projected
revenue per year, 28
USD Mn 6
Phase 1 Phase 2 Phase 3
Year 1 Year 3 Year 5
Phase 1 Phase 2 Phase 3
Go-To-Market Develop credit decision engine able to score own Scale-up the business and attract more vendors Provide data analytics and benchmarks to
approach customers with low latency both locally and in foreign countries merchants
Integrate with physical and online vendors Engage vendors/buyers across touchpoints, and Continue developing new value-added services,
through payments gateway launch subscription membership like advertisement for vendors
Develop vendor and buyer app that allows to Partner with banks to offer micro-credit service (for
perform servicing operation Telco/ retail players)
Build overall financing infrastructure
Offerings App for servicing operation Micro-credit for buyers (for Telco/ retail players) Data analytics and benchmarks for vendors
BNPL service for vendors and buyers BNPL service for vendors and buyers in foreign Products promotion through the advertisement
Micro-credit for buyers (for bank players) countries for vendors
Monetization Merchant fees: Micro-credit: Data monetization:

model  Charge vendors 4-6% fees on BNPL sales  Offer buyers the possibility to pay high  Sell data to vendors on sales and vendor’s
transactions value transactions at 4-6% fees over an profile
Late payment fees: extended period Advertisement:
 Charge buyers 5-10$ fee for late transaction Listing fee:  Sell advertisement on the to vendors
 Charge vendors ~40$ annual listing fee
Interchange fee:
 Charge buyers shopping abroad a fixed
interchange fee on transaction value

Agenda
Opportunity
Value Proposition
Prototype
Approach to Build
Commercial Case
Why McKinsey

We have all the ingredients to partner with you to build a BNPL
venture in MENA
BNPL experts
BNPL is the fastest We have deep We have helped build We have ready
growing consumer & knowledge and >50 digital finance customizable CXO Blazej Karwowski Diana Goldshtein
POS financing expertise on the topic businesses, including document tested in
solution globally including sizing, many BNPL 10+ EMEA banking
business models, propositions for banks CEO meetings to get
economics etc. the conversation Udai Kaura Sagar Shah
started
Fernando Figueiredo Chirayu Gandhi

BNPL brings a new Granular BNPL Breakout
set of revenue country phase; Build and The Leap Lab team
opportunities and sizings scaled a new BNPL
customer experiences Design product; Run a 6-
combining flexible choices & week sprint to define
payment options and economic a new BNPL business Can Kendi Kishan Shirish
high convenience s for each model etc.
model …
Jhonny Jha Giuseppe Manzone

We believe an CLIENT and McKinsey partnership can unlock value
quickly in the BNPL space
 Extensive consumer knowledge  Intimate understanding of the

and experience within existing retail ecosystem and the Saudi
portfolios consumer
Joint
 Network of established Business  Unparalleled experience in retail
relationships within the retail Venture banking products in KSA, the
space in KSA region and beyond
 Unrivalled credibility to attract  Leading track record in digital B2C

financing partners and retail business building
partners to the program

Launch and accelerate a new offering with
a greenfield build of a digital lending
business
Contacts: Ishaan Seth, Amit
Garg, Vaibhav Gujural
Context McKinsey Approach Eng Date: June 2017
Case details
Reference: no
Client wanted to create a new B2C Co-ideated potential opportunities and led
business, as a separate BU, to strategic direction of new business Impact
target new customer segments, re- Led an ecosystem of partners Extended loans of >$4B in under 2 years, with significant
invent category, and establish a QoQ growth
scalable platform for future growth Supported business acceleration  Driven by business model strategies including high
deposit rate (~1.5%) and no branch footprint
$6B
$4B
$2B
$0B
2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018
Introduced digital-first delivery, customer-centric design

thinking, and developed new category value-prop
Launched business with an MVP offering within 12 months
Established org. capabilities to run an “at-scale”
business (200+ FTEs), with the agility of a start-up
 Leveraged external partnerships and an ecosystem of
vendors to accelerate delivery
Source: Company statements McKinsey & Company 90

Supported a UK incumbent retail bank in
defining a strategy to enter the Buy Now
Pay Later market
Pay080
Context McKinsey Approach Impact

Client was an incumbent retail bank Given the current phase in the market Supported the client in defining a
based in the UK with historically low cycle, client was looking to play more strategy to more holistically meet
penetration in the unsecured lending at scale within the unsecured lending customers’ evolving unsecured lending
market due to their risk appetite market, with a starting position of needs through:
The COVID-19 pandemic has  No exposure to the fast growing  Deepening product penetration for
accelerated major consumer and ‘Buy Now Pay Later’ market traditional (credit card and personal
market trends impacting the UK  No direct relationships with loan) lending products within own
unsecured lending market, merchants customer base
potentially leading to a full reshaping  Limited appetite to move into near-  Innovation in the “pay later” space to
Client engaged McKinsey to support prime segment provide customers with flexible ways
defining strategic objectives to drive  No appetite to underwrite in the to finance purchases beyond the card
profitable market growth over the open market
next 3-5 years

Distinctive digital-first consumer offering
Ban-282
Overview McKinsey role Impact and achievements

Client expanded into retail segment by Conducted rapid market assessment to Business was launched with an MVP offering
setting up the new business unit with identify highest opportunity areas for initial within 12 months
distinct talent and accountability product offering Since launch, have extended loans
Client launched new offering in October Developed a compelling and of >2bn USD
2016 as a digital-first platform that differentiated value proposition to Established organizational capabilities to run
reimagines how consumers perceive address core unmet customer needs an “at-scale” business, with the agility of a
banking Implementation – coordinating 10 start-up (over 200 FTEs, organized in agile
Currently offers: workstreams for launch, establishing agile delivery squads)
 unsecured personal loans ($3,500 to delivery “squads”, defining MVP capabilities  Initially leveraged external partnerships and
$30,000 loan size) and features with a stage-gated release an ecosystem of vendors to accelerate
 High yield online savings account & CD cadence (to de-risk execution) delivery
Offered in the US and UK markets Established a project management “live  Over time, built strong internal
lab” to co-create the experience with target capabilities independently drive execution
customers – with rapid prototyping and (for launch and growing the business)
iteration of ideas/concepts; at –scale
testing and refinement of short-listed ideas

Backup

We will test customer journeys to identify the most optimal
configuration of capabilities
Customer journey example
A B C D E F G H
Brand Application & Fraud & Risk Spend line Core processing Loyalty & Customer Collections Product,
awareness & Payment type management – issuance & & billing, Repeat service & Brand,
marketing entry Approval & payment including late purchase dispute Shopping App
Declines fees resolution etc.
Pre-application Application fields and Fraud & credit risk Provisioning and Bill payment Loyalty management, Customer servicing Multi-channel, Shopping App, core
marketing, promoting information sought, management, activation of available management and repeat purchase at across channels and collections for write- product construct etc.
BNPL to existing disclosures, pulls reporting etc. to spend, upfront vs processing, Late fees other merchants dispute resolution off accounts
Issuer consumers from merchant subsequent etc. processes
payments
Heavy investments in 2-3 field application Leverage SKU level 4 installments over 6 Provider is merchant Shopping app to drive Heavy reliance on Limited to no Economics entirely
brand building and forms asking for data for fraud and risk weeks of record in-app engagement digital self-service, outbound collections merchant funded with
joint marketing payment instrument assessment and affiliate FAQ based resolution and balance written ~10-15% of fees
Premium customers Late fees of $8-$10
campaigns with details and email ID in marketing revenues off after two attempts coming from
Device ID, Address can pay first charged a maximum Dispute resolution
merchants on BNPL checkout consumers
match with one on file installment after 1.5 of 2 times before Rewards program and handling team Dunning and line
channels, social
Billing address data at bureau etc. used weeks vs. at time of write-off with incentives on with low SLAs – instatement Shopping app
media etc.
etc. pulled from for fraud check and purchase payment tenure, line capabilities/policies increasingly critical to
No hold placed on Increased
shopping cart KYC etc. needed to effectively drive engagement
Dynamic installments line investments in
manage collections and affinity
No sensitive Soft credit pulls with where initial payment Ability to have upto 5 integration with
Integrations with
information (e.g., no bureau reporting can increase based transactions open merchant OMS to Brand positioning
OMS enable payment
SSN) unless delinquent on risk profile depending on line preemptively address important to
cancellation in case
available major dispute differentiate across
Available to spend of returned goods
reasons merchants and
grows based on Each transaction
consumers
payment history approved/declined
based on model
Decline reasons not
reported
Description Standard/Best practice today McKinsey & Company 94

We developed BNPL capability framework to help identify specific
capabilities required across business build options
Examples of specific BNPL capabilities across the value chain
Product & User Experience Operations Common Origination Analytics Brand Risk
Servicing and
Product Acquisition Application Verification Reporting Collections Business capabilities
A1 Product design – B1 Define brand architecture B11 Reach audience digitally C1 Pull bureau data and D1 Alert customers (mobile, E1 Offer account F1 Resource hiring and G1 Govern rules and
Construct, User for each lending product (Demand-side platform) integrate with rules engine email) on app progress management for basic training for each product decisions
requirements, rules engine with real-time scoring service requests –
input, pricing, journey flow B2 Define visual identity for B12 Build integration APIs for D2 Support customers (omni- Balance Inquiring, F2 Manage collections and G2 Business performance
each lending product POS integrations Report adverse actions channel) on follow ups and Address change, Pre and recoveries (workflow) measurement
C2
inquiries Partial payment, Account including delinquency and
User experience design Design front-end UX and B13 Enable integra-tions with receivables management,
A2 B3 change G3 Financial planning &
(mobile-first) with detailed communications for each Shop-ping cart provid-ers, C3 Capture information with Upload and manage dispute resolution, reporting
process flows across channel of acquisition gateways etc. 6-8 click forms D3 E2 Update credit bureau
documents through remarketing, account
journey reconciliation,
Manage / measure brand
document integration tool
Build customer service G4 Financial analysis &
B4 B14 Set up merchant account C4 Set-up account and/ E3 documentation, decision support
A3 Product concept testing messaging disbursal capability and or offer servicing tools center capabilities for discrepancy monitoring,
through consumer charge back rules for POS D4 Verify ID and capacity servicing, pre-payment, skip tracing etc.)
interviews and co-creation
B5 Earned media & financing through digital top-ups, basic servicing G5 Set up vendor
sessions, Experience Sponsorship plan C5 Authenticate (eSign) & authentication tools management process
approve disclosures E4 Measure operat-
testing
B15 DM support to ions performance and
B6 Segment customer base
Manage/person-alize Track behavior D5 Track and report status
establish reporting norms G6 Staffing/hiring across
A4 Positioning and into pre-approved, C6 functions
content and integrate into and processes
messaging design and conditionally approved,
OLB
testing with focus groups no-decision and denied Service front-end (incl. Track complaints and G7 Analytical sandbox
C7 Define rules (rules engine) D6 E5
segments based on risk, workflow) monitor satisfaction scores environment
DM and economic criteria B16 Manage audien-ces (360
view)
C8 Make customer decisions Process payments G8 Test and learn
Design, launch and D7
B7 (decision engine) infrastructure
manage digital and mailer B17 Tailor landing experience
campaigns on OLB, Mobile and Resource hiring and Fraud monitoring and
Promo code pages C9 D8
training for multi-level mitigation through IP
B8 Manage Bids (SEM) approvals address mapping etc.
B18 Test and Optimize
experience
B9 Manage affiliates/ C10 Relationship based pricing
Aggregates and module
negotiations with cobrands B19 Manage Feedback (social
listening)
on acquisition partnerships C11 Risk-pricing modules for
interest subsidies,
B10 Target audience and B20 Measure & Report merchant specific pricing
enrich data (Data (Impression, Tag for POS financing
management platform) management) partnerships

1. Issuers are beginning to build PoS lending tech stacks – but are
facing challenges given the complexity
See appendix for select deep dives
Example third
Capability required Description party providers
Merchant onboarding Integration with a merchant partner’s website, in-store payment infrastructure, as well as merchant POS financing as a service
e-commerce partners (e.g., Shopify, Magento) across steps in the value chain, training of in-store Sizable players in the US
staff on POS financing offer
Customer origination Front- and back-end powering customer experience across all steps of origination journey online
journey and in-store, including journey integration, customer communication, and checkout experience
Disbursement of funds Settlement of funds to merchant bank account, execution of funds transfer
Subscale in the US
Consumer and Consumer and merchant servicing (e.g., repayment, returns, late payments), including both the
merchant servicing front-end and the back-end processes
Underwriting as a service
Underwriting engine / Underwriting models and data for POS financing (both consumer and merchant underwriting)
models enabling instant decisioning Details follow
Underwriting and fraud Underwriting and fraud check rules driving approvals N/A
decisioning/ rules
Pricing Overall financing infrastructure for POS business (e.g., synthetic P&L, APR and MDR levels, co- N/A
marketing budgets)
Business development Deal team to aggressively pursue new merchant partnerships N/A

Revenue Issue tree for BNPL player
XX Share of total revenue
Revenue issue tree Assumptions
Total transaction value on platform ($) New player to acquire 2% of BNPL market growth in year 1, and 20% in year 5
Assumed 4% merchant fee as share of transaction value ( ~ 3-6% for local BNPL
Merchant Merchant fee (%) players)
fees Total transaction value on platform (#) Took ~150$ average BNPL ticket size
~50% Fixed transaction fee ($) Assumed 0.30$ fixed fee per transaction
Total transaction value on platform (#)
Fee per late transaction ($) Assumed ~7$ fee per late transaction (~ 5-10$ for BNPL players)
Late fees Took ~20% of users with at least 1 late payment (conservative assumption – Klarna has
Share of late payments (%)
~34% of users with late payments)
Revenue Assumed 4 installments due every month, ~70% of users with 1 late payment, 15%
~15-20% Average total cost per late payment
with 2 late payments, 10% with 3 late payments, and 5% with 4 late payments
Return rate Share of sales returned to merchant (%) Assumed ~5-10% of sales returned to merchants
Assumed- 4% credit loan for high value transactions for months 4 to 8, accounting for
Micro-credit ($) ~10-15% ~5-10% of all transactions with ~1000$ average ticket size
Interchange fee ($) ~1% Assumed ~1% interchange fee on foreign transactions
Additional Assumed ~45% of merchants leveraging ads services (Klarna figures), and 3% ads
Advertising ($) ~15% cost as share of revenue
services
Assumed ~5000$ avg revenue per merchant (In 2021, Klarna had 1.375bn$ revenue
Listing fees ($) ~10% with 250k merchants), and 40$ listing fee per merchant
Assumed 100% of merchants paying for data access, and ~12$ annual fee per
~25-30% Data monetization ($) ~0-5% merchant

Cost Issue tree for BNPL player (1/3)
Cost issue tree Assumptions
Cost of
sales Cost of sales (% of transaction value) Took ~1.9% as average Zipco and Afterpay cost of sales as share of underlying sales
Total transaction value on

Lost cost platform ($)
advanced ($)
Share of unpaid fees (%) Assumed ~1% share of unpaid fees (<1% of Klarna customers do not pay fees)
Cost of risk
Total transaction volume on
Took ~150$ average BNPL ticket size
Late fees not platform (#)
Cost -
paid ($)
Opex Share of unpaid fees (%)
Platform setup Includes 2 platform setup engineers in year 1, 4 engineers in year 5
Team including product owner, back-end and front-end developers, business analyst per
Platform development sales segments, data scientist : 2 teams in year 1 to 4 teams in year 5
Manpower ▪ Sales managers
▪ Marketing managers
▪ B2B customer service : from 6 requests/merchant/year in year 1 to 3
Business development requests/merchant/year in year 5
▪ B2C customer service : from 5 requests/year in year 1 to 1 request./user/year in year
5, assuming ~5 transactions/user/year

Marketing
Marketing share of underlying sales (%) From ~2.5% in year 1 to ~1% in year 5
Merchant acquisition ($) Assumed discounted merchant fee from 4% to 2.5% for new merchants for 1 year
Acquisition
cost Customer acquisition ($) Calculated as 1-2% of core BNPL revenues
Advertising revenues ($) Detailed in revenue slide

Advertising
Share of advertising costs (% of revenues) Assumed 5-10% advertising cost as share of advertising revenues
Cost - Manpower costs ($) Detailed in previous slide

General &
Opex
admin. G&A share of manpower costs (%) From ~2.5% in year 1 to ~1% in year 5
Number of servers in year 1

Assumed ~4 servers in year 1
(#)
Number of Calculated based on # of transactions on the platform assuming ~150$ average ticket
User growth (%)
Infra. & servers (#) size and ~5 transactions/user/year
Software
Server load per user From ~1 in year 1 to ~1.4 in year 5
Annual server cost ($) Assumed ~0.4$ server cost per hour


Assumed double year 1 ressources required for “build” option, 50% of ressources for
Capex for manpower, G&A, Infra. & admin “Light build”, and ~20% for “partnership with white label”
Cost - Software license White label : assumed ~as ~40% of acquisition cost (~120 Mn)
Capex Merchant network acquisition White label and light build : assumed ~as ~20% of acquisition cost (~60 Mn)
Acquisition of a new player Buy : assumed ~0.3Bn acquisition cost

Tech and Payments incumbents are increasingly making moves in
the BNPL space
Tech Incumbents Payment Incumbents
In partnership with Affirm, Amazon PayPal stops charging fees on Apple and Goldman Sachs to
shoppers will be able to split BNPL payments and claims +7 mn launch Apple Pay later BNPL
purchases into smaller, monthly users of the service since launch product
installments August 2021 July 2021
August 2021
Square acquires BNPL giant PayPal acquires Japanese BNPL Mastercard launches BNPL service
Afterpay in a $29 bn deal, platform Paidy in a $2.7 bn deal available in the US, the UK and
converting AfterPay’s customer September 2021 Australia
base into Cash App users September 2021
August 2021
Source: Press search McKinsey & Company 101

There are 4 verticals for lending and financing
in retail in the UAE
Deep-dive next
Vertical Description Market Players1

Micro- Digital microcredits enable quick However, the UAE
Lending approval and access for small,
short-term loans via platforms
regulation is very strict
when it comes to retail
lending, thus making
BNPL Provide consumers the convenience
of offering mid-sized & rapidly the license very difficult
approved consumer loans at the and expensive to
point of purchase acquire
Crowdlending Provide online alternative funding
and investment opportunities to
individuals, businesses and other
entities from individual and
institutional investors
Earned wage Allows employees access to their

access money as soon as they've earned
it using an on-demand pay plan
1. Includes players from UAE, KSA, and Egypt
Source: Expert Input, Web search McKinsey & Company 102

Due to strict regulations the landscape for consumer finance
companies in the UAE is limited to a few players
Non exhaustive 2020 Financials
Financial Total Assets, USD Customer Loans and

Institutions1 Mn Deposits, USD Mn Advances, USD Mn Revenue, USD Mn
Due to strict regulation in the
UAE consumer
finance/lending2 can only be 875.0 429.0 520.0 91.0
provided by 2 entities
registered with the central
bank of UAE: 308.0 115.0 281.0 13.5
• Commercial Banks
• Finance Companies 297.0 50.0 39.0 20.0
Small scale consumer loans

(equivalent to micro-loans) 70.0 0.8 1.4 23.0
are provided by finance
companies; however, they
can not collect retail customer 66.0 49.0 38.6 4.4
deposits (they can keep
corporate deposits) or open
bank accounts for their clients 25.0 0.4 9.1 1.5
1. 38 Institutions several of which have been incorporated into larger banks/wound down
2. Instant micro-lending as a proposition is not offered in the UAE due to regulation
Source: Company Financial Statements, Central Bank UAE McKinsey & Company 103
3E: Dependent on the architype where an incumbent plays there are
8 different merchant categories that it can target to build a network
Merchant Direct to merchant Access merchant at scale Create an integrated Card-linked installment
Categories integrations via a channel partner shopping app offerings
High-ticket size merchants with Most merchants that integrate Most of the originations are from Offered through fintech,
elective healthcare categories, such solutions are in higher- higher-margin, discretionary- network-offered solutions or
or move niche home ticket, lower-frequency spend categories cobranded or narrowly targeted
improvement options e.g., purchases where cart merchant partnerships e.g.,
HVAC, remodeling etc. conversions are critical Amazon
Apparel and
footwear
Fitness
Accessories1
Electronics
Beauty
Healthcare
Home
Improvement2
Travel
1. Includes categories such as Jewelry, Arts and crafts etc.
2. Includes elements such as furniture, home goods, decorating, landscape design etc.
Source: Web search, McKinsey article, expert input McKinsey & Company 104
While BNPL has proven to be successful overall, it faces three
key risks
Application of responsible Exposure to higher credit Intensifying competition

lending laws risk customers from lenders
Sits outside the credit acts and As BNPL becomes mass market, it With increasing popularity, credit card
responsible lending protections for could increase exposure to higher players and other lenders, may
consumers risk customers increase their propositions
SOURCE: Web Search, Team Analysis McKinsey & Company 105

We analyzed the current ePOS loan path1 from the
moment of application submission to improve it
Well Requires minor adjustments Requires technical Good implementation, but no immediate
implemented (texts, interaction, etc) adjustments value for the user. Recommended to
reduce or simplify to increase conversion
Key growth areas

Product
1 2 3 4 5 identified along the way
selection
Scanning QR code Amount entry Choose installment Entering income, Uploading ID 1. High cognitive load on the user at
plan/loan individual data, telephone the initial stages of the application
numbers, sending and
entering payor tests 2. No mental simulation of
product interaction
3. Excessive waiting times during
6 7 8 9 10
installment process
Obtaining EDI and Document review Completion of additional Get familiar with the Video identification 4. Lack of transparency on the
signing questionnaire: enter consent and introduce progress made and the remaining
contact details the P&L number of steps
5. Lack of transparency on request
status and link between
installment plan, mobile app
installation and usage
11 12 13 14
6. Lack of a smooth process of
Purchase paid for Registration in the Use of Bank app Loan repayment goods return
Bank mobile app
7. No proactive cross-sell of other
products in the mobile app
The analysis was performed for online and offline journeys. The conclusions outline general recommendations for the two ways.

Based on that we defined desirable «to be » customer journey -
installment plan without first payment
Σ Edge case happy path X Edge case unhappy path Merchant application/website "Bank name" Stage may be removed
Mobile app
1 2 3
Marketplace Enter phone number + OTP, INI,
Product search and selection Select payment method consent to processing personal
Mobile app data and service terms
4 5 6 7
Approve/propose another Store card data. Information on
Enter card data to link and Card binding confirmation
method of payment, accept installment plan and repayment
generate recurring payments (3D Secure)
offers methods. Mobile app link
X Refusal to approve installment plan X Card link failure X Payment refusal
8 9 10 11
Repayment and installment

Mobile app registration Reminders of upcoming payment Goods return
analytics
It is necessary to add a "Delivery Σ Automatic payment write-off

confirmation" step
Σ Early repayment
to verify that the customer has received the
ordered product by sending an OTP X Penalty for non-payment

BNPL in GCC Pitchbook (6030)

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BNPL Concept

CONFIDENTIAL AND PROPRIETARY

McKinsey & Company 2

Market and Competitive Analysis

McKinsey & Company 3

Sectors (top 5) Number of unicorns % of total Combined value, Selected examples

Fintech 127 17% 503

Source: Crunchbase McKinsey & Company 4

Digital Banks Digital attackers Telco Fintechs Retail Fintechs

... and many other telcos investing

McKinsey & Company 5

Digital attacker banks Payments became the most

Source: Dealroom.co: McKinsey FinTech McKinsey & Company 6

Fintech funding by sector, powered by McKinsey FinTech Index1

2016 17 18 19 20 2021 2016 17 18 19 20 2021 2016 17 18 19 20 2021

Source: Dealroom.co, McKinsey FinTech McKinsey & Company 7

$12,692 2-3% $148 2-3%

Source: McKinsey Consumer Lending Pools McKinsey & Company 8

Finance options at POS

Source: McKinsey McKinsey & Company 9

BNPL players (120% growth in

2.4 Off-card solutions (80-100%

Source: Dealroom McKinsey & Company 10

Consumer gets immediate Key characteristics of BNPL

SOURCE: McKInsey McKinsey & Company 11

North America Europe Global

Example players Example players

Latin America Saudi Arabia & UAE Asia Pacific

2.0% 3.8% 2.0%

(Installment options currently Example players Example players

Source: Worldpay Global Payments Report 2021 McKinsey & Company 12

Financing need Provider Description

POS lending solution offering 1-12 month payment options

An online payment gateway, iterated its business into BNPL play

An interest free, pay in 4 installments payment solution

1. where there is an outstanding balance McKinsey & Company 13

Market and Competitive Analysis

McKinsey & Company 14

Consumer pain points Merchant pain points

Lack of disposable income leading to

Alternative payment methods come

High consumer cart abandonment

Stunted business growth

McKinsey & Company 15

Consumers Retailers Financial institutions

McKinsey & Company 16

XX% Estimated percentage of total North America Asia Europe RoW

Global VC investment2 in BNPL companies Top BNPL companies by VC

1.0 1.0 0.6

Source: McKinsey Panorama Fintech, Dealroom.co McKinsey & Company 17

BNPL payments projected sales1, Bn$, Insights

Deep-Dive next Merchant-led verticals Consumer-led verticals

Vertical focused Off-card financing Create an integrated Card-linked

Klarna at a glance Core proposition elements Key data

Source: Press search McKinsey & Company 20

Tabby at a glance Core proposition elements Key data

1. Plans to expand to NA(Egypt)

Tamara at a glance Core proposition elements Key data

Present in 3 2 interest-free options: 6

ValU at a glance Core proposition elements Key data

Amazon will acquire US$10 million in

Vertical focused large- Off-card financing Create an integrated Card-linked installment

McKinsey & Company 24