Buy Now, Pay Later: Changing Credit in Asia Pacific

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Although BNPL platforms have been accused of leading consumers into debt traps, their popularity has been surging across the Asia Pacific since last year

By Phil Pomford

The pandemic brought a wave of change in consumer behavior across the world. Consumers migrated online within a few weeks and started working, studying, socializing, and shopping online. This means that a bulk of the transactions that earlier took place offline, moved online and fintech usage grew by leaps and bounds.

The World Bank reported last year that the fintech market grew rapidly amid the pandemic. This growth in fintech has been observed across product categories, including digital payments.

Riding this wave of fintech growth, ‘Buy Now, Pay Later’ (BNPL) platforms have taken Asia Pacific (APAC) by storm over the past 12 months. BNPL platforms allow consumers to buy products and pay them off over time. The repayment period could be weekly, bi-weekly, or monthly. Some platforms provide attractive offers like zero-interest and the flexibility to pay-in-instalments.

The global BNPL market is expected to grow at 21.1% CAGR to exceed US$33.6 billion by 2027, according to Coherent Market Insights. APAC is expected to be the fastest growing region during the forecast period.

Across the region, major BNPL players like Afterpay, Hoolah, and Atome are fast expanding. Worldpay from FIS’ 2021 Global Payments Report found that BNPL is the fastest growing online payment method in Australia, India, Japan, Malaysia, New Zealand, and Singapore. It is also predicting that the BNPL e-commerce market share will more than double in the region, from 0.6% to 1.3% over the next four years.

This growth is especially significant in New Zealand where BNPL is forecasted to make up a whopping 38% of online transactions during the same period.

The BNPL appeal

It is not hard to see why BNPL has become such an attractive option to consumers in recent times. The pandemic response accelerated e-commerce growth as more consumers chose contactless online shopping. And as financial uncertainty climbed, BNPL offered a way to break up high-ticket purchases into manageable instalments, often without immediate interest like on a traditional credit card. This makes it an appealing option for budget-conscious consumers like Gen Z and millennials.

A Worldpay study conducted last year found that BNPL is more likely to be used by the younger generation, who are also more focused on setting budgets than their older counterparts, further explaining its popularity amongst this demographic. However, an Indian BNPL platform ZestMoney reported that the average age of its customers is 34 years, although its youngest customer is 19 years.

BNPL platforms have been trying to prioritize the needs of consumers like practicality, speed and convenience of payments. The concept of post-purchase instalment program is not new, but the ease of use, flexibility, and mutual benefit that BNPL delivers at various phases of the value chain has made it one of the fastest growing segments in payments.

Not only are BNPL platforms convenient for consumers to sign up for and start using, they are also integrated within the merchants’ checkout page, offering a smooth and frictionless experience for users.

BNPL prompting banking innovation

With BNPL gaining momentum, the pressure is on banks to rethink their approach and keep a competitive edge. Some banks are considering evolving their credit card propositions to offer lower minimum repayment sums or a more flexible repayment schedule.

In Australia, two of the four biggest banks have further launched cards that have cost structures which are closer to a BNPL service than a traditional credit card as they seek to protect their market share. National Australia Bank launched the NAB StraightUp card in 2020, which allowed customers to access credit of up to A$3,000 for a flat monthly charge, or pay nothing if the card is not used, while Commonwealth Bank of Australia has also released a similar product.

Regulation on the horizon

As BNPL makes further inroads in APAC, discussion around regulating the sector has understandably increased. As BNPL loans do not charge interest, they are not regulated as credit products, and BNPL providers have so far had free reign operating in a relatively new space.

However, authorities in APAC are concerned that these services inherently encourage young people to fall into debt traps, and they have signalled that they are, or will be, reviewing the regulatory approach for BNPL schemes.

The Monetary Authority of Singapore (MAS) is currently consulting with industry players and is potentially looking to create a framework which is risk proportionate and evenly applied across providers. In Australia, a BNPL code of practice outlining consumer protection standards and created by the Australian Finance Industry Association (AFIA) recently came into force.

The UK, which is a more mature market, has already announced that BNPL will be fully brought under financial services regulation. Similarly in APAC, we can expect more concrete industry guidelines to be put in place down the line to govern different aspects of the schemes such as credit assessment, payment authorization, and marketing practices.

The key will be about striking a balance between regulation which protects the interests of consumers without stifling innovation of a product which is delivering value to consumers and merchants.

The Future of BNPL

There is no doubt this is an exciting period for BNPL, both in APAC and globally. Amidst a competitive landscape, BNPL offerings will evolve to be more sophisticated as local providers seek to differentiate themselves. Providers will be looking to build loyalty by complementing BNPL with cashback or reward programs that encourage repeated purchases. Afterpay has already launched a loyalty program, Pulse, that rewards on-time payments.

There is a grave need for BNPL provider to become bigger advocates for responsible lending not only by allowing users to set monthly individual credit limits, but also by providing education around personal finance. Hoolah is a setting an example by adopting a proactive approach in producing content that offers tips on budgeting and personal financial management.

These efforts, made in tandem with the regulatory developments, will help ensure that the BNPL growth is viable, and enable consumers and merchants to reap the benefits in a safe and secure manner.

Header image by Yura Fresh on Unsplash

About the Author:

Phil Pomford leads the Worldpay Global eCommerce team as General Manager across Asia Pacific, which operates five offices in Singapore, Australia, Japan, China and Hong Kong. Phil has over 17 years of experience in financial services in payments, acquiring and credit card issuing with companies including Citi, Diners Club, American Express, and Worldpay. Having lived in Asia for 22 years, he has held diverse management roles across Asia Pacific and developed key strengths in customer development, strategy, financial planning, and new market entry. He has a degree in Accounting and Law and a MBA from Manchester Business School.

www.fisglobal.com

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