When 32-year-old editor Samantha Tan signed up for a BNPL (buy now, pay later) platform last year, it was mostly to redeem discounts. Her first few transactions were seamless, but it was only when she tried returning an online purchase that things got complicated: The staff told her to complete the instalments in full so they could give her a cash refund at the store.
But because it was an online purchase, she had to schedule a pickup, which never happened. She’s now stuck with the items, and does not have a solution at hand. She adds: “The annoying thing was that I did have the money to spend. It was just an impulse buy at the end of the month and I wanted to feel less guilty about spending.”
You might have seen the eye-catching signs of Atome, Hoolah and Pace at the check-out counters of both offline and e-commerce retailers. This is how they work: You rack up a bill of, say, $200, and you have the option to pay the full sum instantly using conventional methods (cash, debit or credit card), or use a BNPL platform to split the interest-free payment over a couple of months.
Many retailers also offer rewards and discounts only for BNPL users. You also have the option of clearing your debts ahead of time, without incurring a fee. In Singapore, a 2021 research report by consumer research and analytics company Milieu Insight noted that around 19 per cent of the adult population have used a BNPL platform, out of which, 73 per cent attested that they would continue doing so. In 2021, BNPL transactions amounted to US$317 million ($441 million) in Singapore (which accounts for less than 0.5 per cent of total credit and debit transactions), and are predicted to increase to an estimated US$3 billion ($4 billion) by 2028, according to a PayNXT360 report.
The trend is in part fuelled by a growing mistrust of credit cards by Gen Z and millennials. Sandeep Malhotra, executive vice-president, Products & Innovation, Asia Pacific, Mastercard, says: “Gen Z and younger millennials are the first true digital natives. While they carry fewer credit cards than older generations, recent research from Mastercard found that more than 90 per cent of Gen Zers and millennials in the Asia-Pacific region used a wide range of digital payment methods (including BNPL) in the past year, demonstrating their willingness to consider and use multiple payment options to suit their needs in different situations.”
Atome’s CEO David Chen notes similar habits among the users of his BNPL platform: “Sixty per cent of our customers prefer to use debit cards as a repayment option, even though they do have or are eligible for credit cards. Through our extensive market research, we also found that younger consumers don’t like the idea of applying for financial products that charge interests and annual fees. Many of them like to shop, but also want a way to control and manage spending without getting into debt.”
The average basket size for a BNPL transaction is $100, and David says that the most popular segments are fashion, beauty, cosmetics, home and living. He affirms that “more confidence has to be built around the usage and normalisation of BNPL”.
Turochas Fuad, founder and CEO of Pace, goes on to add that he believes that BNPL is still a “nascent technology” in Singapore, with high growth potential. “I expect to see BNPL grow in popularity, not only because of its ability to split payments, but also because of its diverse benefits. This can include easy merchant discovery, exclusive discounts, or loyalty rewards through points, cashback or rebates.”
“Are we encouraging people to go into debt, although they may not see it as debt and just see it as three easy payments?” he asked. His sentiments are echoed by experts including chief credit analyst for Lending Tree, Matt Schulz, who told CNBC: “With buy now, pay later loans, since they’re so new, the process isn’t quite down to a science.”
The fact is that it is laughingly fast and easy to set up an account on any BNPL platform. Says Mastercard’s Sandeep: “Account set-up takes no more than a few minutes, requires little personal information, and credit approval is given in just a few seconds during the checkout process.”
Given that credit checks are minimal, BNPL platforms are investing in various tools. At Atome, David says: “We evaluate consumers’ early repayment capabilities, and personalise spend limits based on historical purchases and payment behaviours.” Meanwhile, Pace’s Turochas asserts that: “We continuously develop our bespoke credit scoring algorithm to match users with appropriate buying limits. Our algorithm does checks from across a variety of data points, including the Credit Bureau Singapore (CBS).”