BNPL market in Uzbekistan: trends, challenges, and prospects

BNPL (Buy Now Pay Later) and installment services are in high demand globally, with the global volume of transactions in this segment forecast to grow by almost $450 billion between 2021 and 2026. Intense development of this segment has also been seen in Uzbekistan, where the fintech market is growing rapidly and cashless payments are gaining in popularity. In his column, co-founder of UPay Bekhzod Botirov looks at the key advantages of BNPL services, current trends in this segment, and what the industry in Uzbekistan needs to ensure sustainable development.



BNPL services are an effective tool for small business development and a convenient financing solution for consumers. Customers can purchase products and pay in equal installments over a pre-agreed period of time (typically up to a year). Moreover, many companies offer installment plans without an additional markup. This model allows customers to not only avoid large one-time expenses that can overload their budget but also to acquire more expensive and high-quality goods instantly, without resorting to conventional loans with high interest rates.

On the other hand, BNPL can help businesses increase both their turnover and average order value (AOV). Customers often make purchases knowing that they will pay in installments, and therefore choose a wider range of products. This allows business owners to expedite sales, expand their product line, and increase sales volumes. In addition, offering BNPL services helps business owners reach new demographics, such as students, recent graduates, and large families. Lastly, customers are more loyal to sellers who offer this option. 

Characteristics of the BNPL segment in Uzbekistan 

Retail chains in Uzbekistan have long offered customers the option to purchase products on an installment plan. Financial institutions followed suit in 2019-2020 after developing their own tools for offering BNPL services. As a result, the BNPL and POS financing market — loans issued directly at points of sale — reached $450–500 million in 2023 in terms of gross merchandise value (GMV).

Two-thirds of the BNPL market in Uzbekistan is made up of Alif Nasiya and Uzum Nasiya services. For the latter, the volume of installments issued in the first 9 months of 2024 more than doubled compared to the same period in 2023. This is amid the growing popularity of online shopping and digital banking services. It is also noteworthy that both companies recently secured funding: Alif Uzbekistan obtained $5 million from British investment platform Cur8 Capital and $20 million from American investment company Accial Capital to develop Alif Nasiya installment services. Meanwhile, Uzum attracted more than $100 million, which will be invested in unsecured loan products for individuals and installment funding.

Electronics and household appliances continue to be the most popular products purchased under installment plans. These product categories are usually highly priced, but BNPL allows customers to purchase the latest products, such as the newest iPhone, without straining the family budget. Interestingly, 77% of the BNPL market in Uzbekistan is currently made up of offline purchases, which were around long before online services became available. Ishonch, a major player in this segment, operates exclusively offline, whereas ZOOD is a fully digital platform. 

These days, it is relatively easy for businesses to start offering BNPL services in Uzbekistan since they don’t need to open branches or coordinate operations with central banks, as is required for microfinance institutions. Any trade organization can offer these services by entering into contracts with consumers without having to involve banks or MFIs. The mechanism is usually simple: BNPL providers buy products at full price or at a discount in both offline and online stores, including marketplaces, and sell them in installments. 

Defaults and data: market challenges 

The development of the BNPL industry in Uzbekistan comes with certain challenges, one of which is defaults on payments. Though this has not yet become a mass phenomenon, there are instances of this. One of the most popular products purchased in installments is mobile phones, but sellers often face problems with late payments. The customer may make the first payment on time, the second payment late, and after that stop making payments altogether. Another complication arises from the fact that some devices imported into Uzbekistan are gray-market products, and therefore do not undergo mandatory registration in the UZIMEI system to register the IMEI codes.

One solution may be to apply the “smartphone contract” model. Under this contract, concluded between the mobile network operator and the customer, the customer pays back part of the cost of the device in addition to a monthly fee for their phone plan. This approach has already been widely adopted in several other countries. In the UK, for example, the mobile network operator O2 offers long-term contracts for 12, 24 or 36 months, where the cost of the smartphone is split into equal monthly payments included in the monthly fee. If the customer stops making payments, the operator can block the phone using the IMEI code, preventing it from being used with other network operators. In the future, this mechanism could be extended to other devices such as tablets and notebooks, which would not only reduce risks for suppliers, but also legitimize the market overall.

Integrating BNPL services with government information systems, electronic legal proceedings, and law enforcement agencies can also significantly lower the risk of defaults. As the microfinance market develops, the debt burden on citizens is expected to grow. In August, it was announced that the maximum microloan amount would be increased to 300 million sum. While this expands opportunities for business owners, it can also lead to a rise in indebtedness and an increase in the volume of problem loans. 

Defaulters may continue to make use of BNPL services, which poses additional risks for the system. Companies often have to resort to extreme measures to get the funds back, including taking legal action. An effective solution could be to ensure data exchange between government and private systems. On the one hand, this would help to improve the credit scoring process when issuing installment plans, and on the other hand, speed up legal proceedings. Moreover, data integration makes it possible to aggregate information on dishonest buyers. This will restrict their access not only to BNPL services but also to loans provided by microfinance institutions and banks.

Main trends: BNPL for services and installment cards 

A key trend seen in the Uzbek market is the operation of BNPL services through microfinance institutions, or through issuing MFI licenses. Both Uzum Nasiya and ZOOD have already obtained the necessary authorization to operate this MFI-based model, which will allow them to provide a wider range of financial services. In particular, they will be able to issue loans.  

In addition, these licenses will make BNPL available not only for physical products but also for services, which, at present, is something only specialized companies such as travel agencies can offer. This direction is especially promising, given that the Uzbekistan-2030 strategy predicts the number of domestic tourists to grow to 25 million by 2030.

An interesting area of growth for BNPL services could be offering installment plans for organising events like weddings or birthdays. Another potential direction could be trending services such as car window tinting. And, of course, BNPL services are relevant in education, a field that has been developing rapidly in Uzbekistan. Over the last 7 years, the number of universities has increased from 77 to 210, and online courses are also gaining popularity. In 2023, IT Park, together with Coursera, launched the national training platform Uzbekcoders.uz. Installment plans for further education will allow professionals to improve their skills and even switch careers without having to save the entire amount in advance. 

Another promising area for development is installment cards, which are already being offered by Solfy and AnorBank. Meanwhile, ZOOD recently launched its own solution in partnership with Mastercard, and Uzum Nasiya is set to launch a similar product soon. These cards allow customers to purchase goods in installments from partner stores, while mobile applications allow users to keep track of their payment plans and available limits.

The success of this product is determined by the number of B2B partners whose goods can be purchased using these cards. With this in mind, Uzum Nasiya’s solution looks promising because it allows customers to purchase products from the Uzum ecosystem, which already features around 12,000 entrepreneurs from all over the country. In the future, the card can be used to pay for services, and the payment information will be included in the user's general credit history.  

Transparency without barriers 

The BNPL market in Uzbekistan is not currently regulated. While it is necessary to make changes in this regard, it’s important that the law is not too restrictive, as this could disrupt the development of this industry. In my opinion, there is no need for BNPL players to have separate licenses. That said, new companies should notify the central bank when they start operating and set up information exchange processes with tax and credit registers. 

In particular, they need integration with CRIF and the Credit-Information Analytical Center. On the one hand, this would allow them to obtain information on the borrower’s credit rating, conduct KYC and AML checks, and make decisions on whether to offer an installment plan. Market leaders already use up to 250 parameters for credit scoring. Using machine learning technologies, they analyze information from credit bureaus, government institutions, credit card transactions, as well as buyer behavior on e-commerce platforms. However, such a comprehensive check is not yet standard practice for most BNPL services.  

On the other hand, integration will allow credit bureaus to update their databases so that other BNPL services and MFIs have as much information as possible on customers’ creditworthiness. This means they can refrain from issuing loans to any customers who are not paying off their installment plan, which, in turn, will help to reduce risks for all market players. In the meantime, the volume of problem loans in MFIs is increasing gradually, with the total exceeding 200 billion sum as of 1 October. 

Personal identification solutions can also contribute to increasing industry transparency and reducing cases of fraud. According to the Central Bank, fraudsters are increasingly using social engineering techniques to issue online loans on behalf of citizens through mobile banking applications. As a result, users are now required to undergo biometric identification when applying for a loan through a banking app. Similar instruments may also be useful for BNPL services, and, along with scoring models, can help minimize risks for loan providers. 

Conclusion

The development of BNPL services in Uzbekistan is growing rapidly, with huge potential for expansion in both the goods and services segments. According to KPMG, the GMV for BNPL and POS financing may grow 4.1 times between 2023 and 2027, and the percentage of BNPL transactions in e-commerce will reach 22%, compared to the current 19%. The key success factors for this industry will be implementing proper risk management, ensuring integration with government systems, and, of course, creating products that meet customer needs.