The buy-now-pay-later (BNPL) space is booming despite being a relatively new category in SEA. In fact, the industry is expected to grow from US$7.3 billion in 2019 to a whopping US$33.6 billion in 2027. Globally, it’s predicted to hit US$1 trillion by 2026.
This is partly due to the accelerated growth of e-commerce, coupled with financial uncertainty caused by the pandemic. BNPL has become more appealing consumers who are looking for financing options with more convenient, alternative payment methods.
As this space continues to grow in SEA, the question is, will BNPL take over credit cards? Wild Digital SEA 2021 put together a panel of stakeholders representing various areas in the financial ecosystem to discuss the sustainability of BNPL, and its potential impact on traditional banking systems.
Moderated by Amra Naidoo, the co-founder and General Partner of Accelerating Asia, the discussion was joined by:
- Ian Ow, founder and CEO of Ablr;
- Sumit Kumar, partner and Managing Director of Boston Consulting Group (BCG);
- Conor Lynch, Head of Consumer Solutions at Visa.
The appeal of BNPL
BNPL provides more clarity than credit cards
According to the panelists, one attractive factor about BNPL is the clarity it gives buyers, especially if they’re less aware of how to leverage credit cards for their own benefit.
Say you’re buying an item worth RM900. Most BNPL systems like Split and hoolah would allow you to split your payments into 3 installments over a period of 3 months. Therefore, you’ll pay RM300 now, and another RM300 for the next, and following months.
“BNPLs actually set up a payment plan for customers and hence I think that BNPL isn’t going to screw up people’s spendings and lead them to incur debt. They’re giving people transparency into how much they can expect to pay,” said Sumit.
This is as opposed to credit cards that tell customers they only have to pay 5% now and have the flexibility to pay the full amount later, albeit with some interest, he added.
“But if you think about it, credit cards also use a BNPL system, and you do get 60 days to pay it back interest-free,” Conor pointed out. “If you pay it all off, you’re doing well. But the point is that many people don’t, and it becomes less clear and harder to manage the payment terms without being subjected to interest rates.”
Serving less creditworthy customers
BNPL is able to serve a segment of customers who want to buy stuff and pay for it later, but don’t qualify for credit cards. They include those in younger demographics that are less creditworthy in the eyes of traditional banks, according to Conor.
Being the CEO of a Singaporean BNPL service, Ian related the generational shift to social media, where younger audiences have moved from Facebook to TikTok. They’re still consuming content, just through ways that are relevant to the time they’re in.
“What we’re doing is looking at how this demographic consumes financial services and credit, and figuring out how we can use that as a starting point to educate and enable them to learn about what credit is and how to use it in a sustainable way,” stated Ian.
Conor added that it doesn’t mean those in older generations are less likely to jump on board the BNPL train. He stated, “We’re all human beings and we want clarity. Our research shows that when it’s presented to them in the right way, and offered to them by the right lender, BNPL is also attractive to older gens too.”
BNPL is a wake up call to banks
Conor noted that though it may seem like BNPL will overtake the use of credit cards, the service is actually providing a very good consumer experience.
“It shows the value of fintech, and the value of fresh thinking when applied to financial services,” he said. “Rather than coming at the expense of traditional credit cards, it probably will end up helping credit cards become a much better consumer experience.”
To get a slice of the BNPL pie, Connor gave an example where Visa collaborated with HSBC in Malaysia to allow HSBC credit card holders to spread their payments over instalments. AKA, using a BNPL system but through a credit card.
The whole point of this offering was to proliferate BNPL as a solution within Malaysia in other markets, extending it out from credit to also include debit. “We even want to make it available for those who can buy goods from websites or when they’re outside of their home country on a BNPL basis,” Conor said.
BNPL and fintech in general are serving as a wake-up call to traditional banks, making them realise that there are segments of consumers outside of those that are traditionally looking for credit cards.
But there are certain hurdles to overcome
There is a reason why traditional banks have been so slow to innovate, and that’s because banks are far more regulated than fintechs, stated Sumit.
Unlike traditional banks that require a loaner to provide documents like their EPF, financial statements, salary details, etc., BNPLs can forgo these steps. “Banks are playing within the edges of regulations, and I think they’re super scared to get into the space where you are able to give a credit line to someone that easily,” Sumit explained.
“The other point is, where is the money coming from [for BNPL loans]? Right now, the funding from private equities (PE) and venture capitalists (VC) are the only things subsidising BNPL business, which I don’t think banks have such an advantage,” he disclosed.
Banks are responsible for handling their customers’ money within the bank and don’t have the same flexibility to loan out money as easily as BNPLs.
Sumit foresees that if banks plan to offer such flexibility, they’ll only do so under their fintech arms like how CIMB has Touch ‘n Go eWallet, while Maybank has Grab.
The end goal is to work with each other
From Ian’s perspective, banks are not a competitor, nor are BNPL providers trying to dominate them. He thinks that there is actual value in collaborating with banks from a funding standpoint and a regulatory one.
“We take a collaborative approach to look at how we can work together with financial institutions, including banks,” he said.
Ian added that Ablr has already been approached by a few banks to look at partnering in the industry to create better products together.
Conor chimed in, stating that Visa has been helping fintech players create a scoring model for risk assessment.
“We’re helping fintechs that aren’t banks get a better handle on how consumers are behaving and how they fund the BNPL transactions. They’re better able to understand what level of credit to extend to the consumer, what level to add to it, and when to take away from it,” he explained.
Featured Image Credit: Ian Ow, founder and CEO of Ablr / Sumit Kumar, partner and Managing Director of Boston Consulting Group (BCG) / Conor Lynch, Head of Consumer Solutions at Visa / Amra Naidoo, co-founder and General Partner of Accelerating Asia