SECTOR REPORT: BUY NOW PAY LATER
BNPL regulations toughen debt prevention and financial literacy in Asia Pacific The Philippines, Vietnam, and Indonesia are more vulnerable to the risks of credit products. ASIA PACIFIC
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s the buy now, pay later (BNPL) payment scheme is growing in popularity in the Asia Pacific markets, regulators are working to prevent accrued debts and educate consumers on how to manage their finances, Euromonitor International said. It urged underbanked populations, such as the Philippines, Vietnam, and Indonesia, to work closely with those in more experienced markets like Singapore and Australia, to strike the balance between allowing companies to operate whilst also keeping consumer debt at a manageable level. Herbert Yum, Euromonitor International’s Research Manager in APAC, said the regulations revolve around “the risk of putting consumers overly in debt when using BNPL products are well under control, consumers having a good understanding of contractual terms of BNPL products, and the ability for BNPL providers to conduct a thorough assessment of consumers’ creditworthiness.” Yum said markets can better manage their financial health after having been exposed to credit products earlier than others in the
The risk of putting consumers overly in debt when using BNPL is well under control
region. In Hong Kong, for instance, some consumers try not to use credit cards to ensure that they are not heavily hurt by debt because of the misuse of those consumer credit products. “In Hong Kong and Singapore, consumers are relatively knowledgeable and educated in terms of the risks and the value associated with the consumer credit product,” said Yum in an interview with Asian Banking & Finance. But the Philippines, Vietnam, and Indonesia have low exposure to financial technology services, said Yum. A Euromonitor, Bain & Company, Temasek, and Google joint study showed that most underbanked populations are in Vietnam (79%), the Philippines (78%), and Indonesia (77%). Euromonitor’s Consumer Finance data showed that the transaction size of BNPL is still low in the APAC region against other payment methods such as credit and cash payment despite BNPL’s growth seen over the past year. Yum said this is because the payment platform is still in the early stages of development. Hong Kong’s BNPL accounts for
BNPL regulators must educate consumers on how to manage their finances (Photo by Dave Dugdale)
30 ASIAN BANKING & FINANCE | Q1 2023
0.3% of the other personal loans market. BNPL penetration of other personal loan markets is 1.9% in Indonesia, 0.5% in Malaysia, 6.8% in the Philippines, and 3% in Singapore, respectively, in 2022. Best practices Australia started requiring members of the Australian Finance Industry Association to impose limits on how much can be paid in late fees. One of the BNPL platforms in Australia is Afterpay, founded in Sydney in 2014. The BNPL providers must also think of an internal dispute resolution process to ensure customers can be assisted when they have difficulty repaying the instalments, Yum said. Despite being the early adopter of BNPL solutions in the region, its government is still considering feedback on the future regulatory framework for BNPL products due to the gaps in BNPL regulation under Australia’s laws. “However, since BNPL products fall under the exemptions available to certain types of credit in Schedule 1 of the Credit Act or the National Credit Code, it is not properly regulated in Australia,” said Yum. According to Australia’s treasury government, the exemptions create “potential for consumer harm due to the absence of key protections” such as responsible lending standards or other requirements of the Credit Act. In Singapore, a US financial technology firm, FIS, reported that the BNPL market is expected to grow at a compound annual growth rate of 40% through 2025. This makes it the fastest-growing online payment method in the Lion City. As this happened, the Singapore FinTech Association put up a BNPL Working Group and created a code of conduct for BNPL providers that was launched in October 2022. Yum said the BNPL providers will self-regulate to help consumers spend their money wisely. To do so, a cap of SG$2,000 (US$1,522) was imposed. BNPL providers should also suspend
