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The Buy-Now-Pay-Later (BNPL) space is growing despite being a relatively new category in the SEA. In fact, the industry is expected to grow from $ 7.3 billion in 2019 to $ 33.6 billion in 2027. Globally, it is predicted. $ 1 trillion by 2026.
This is partly due to the rapid growth of e-commerce, along with the financial uncertainty caused by the pandemic. BNPL has become a more attractive consumer looking for opportunities to finance with alternative and more convenient payment methods.
As this space grows in the SEA, the question is, will the BNPL take credit cards? Wild Digital SEA 2021 gathered a stakeholder group representing various areas of the financial ecosystem to discuss the sustainability of the BNPL and its potential impact on traditional banking systems.
Moderator, co-founder and senior partner of Amra Naidoo Accelerate Asia, joined the discussion:
- Ian Ow, founder and CEO Ablr;
- Sumit Kumar, partner and managing director Boston Advisory Group (BCG);
- Conor Lynch, Head of Consumer Solutions Visa.
BNPL appeal
The BNPL provides more clarity than credit cards
According to panelists, one attractive factor about BNPL is the clarity it provides to shoppers, especially if they are less aware of how credit cards should be used for their benefit.
Say you are buying an item worth RM900. Most BNPL systems like it Divide and aupa It will allow you to split your payments into 3 months. So you will pay RM300 now, and another RM300 in the next and next months.
“The BNPL is setting up a payment plan for customers, which is why I believe the BNPL will not screw up people’s spending and become indebted. They are giving people transparency to know how much they can pay,” Sumit said.
That is, he added that customers now have to pay only 5% and then have the flexibility to pay the full amount compared to credit cards, albeit with some interest, he added.
“But if you think about it, credit cards also use the BNPL system, and you have 60 days to return them without interest,” Conor pointed out. “If you pay for everything, you’re doing well. But the fact is that a lot of people don’t, and it’s not so clear and difficult to manage payment terms without incurring interest rates. ”
Serving low-credit customers
BNPL is able to serve a segment of customers who want to buy and pay for things later, but who do not meet the requirements for credit cards. According to Cone, traditional banks believe they fit into younger demographics with less credit.
As CEO of a BNPL service in Singapore, Ian linked generational change to social media, where young audiences have moved from Facebook to TikTok. They’re still consuming content, in ways that are appropriate for the time they are in.
“What we’re doing is examining how this demographic is consuming financial services and credit, and how we can use that as a starting point to learn what credit is and how to use it sustainably,” Ian said.
Conor added that this does not mean that older generations are less likely to jump on the BNPL train. He stated: “We are all human beings and we want clarity. Our research shows that when presented in the right way and offered by the right lenders, BNPL is also attractive to seniors. ”
BNPL is a wake-up call for banks
Conor noted that while the BNPL seems to be surpassing the use of credit cards, the service is offering a very good consumer experience.
“It shows the value of Fintech, and the value of new thinking when applied to financial services,” he said. “Instead of coming at the expense of traditional credit cards, credit cards will probably help the consumer experience much better.”
To get a piece of the BNPL pie, Connor gave an example where he partnered with Visa HSBC in Malaysia to split HSBC credit card holders into installments. AKA, using the BNPL system but via a credit card.
The purpose of this offer was to proliferate the BNPL as a solution in other Malaysian markets, including the indebtedness of credit. “We want to make it available to people who can buy products from websites or when they are out of their country through BNPL,” Conor said.
BNPL and fintech in general serve as a reference for traditional banks to realize that there are consumer segments outside of those who traditionally seek credit cards.
But there are some obstacles to overcome
There is a reason why traditional banks have been so slow in renewing traditional banks, and that is because banks are much more regulated than fintechs, Sumit said.
EPF, financial statements, salary details, etc. unlike traditional banks that require a loan to provide such documents, the BNPL can waive these steps. “Banks are playing on the fringes of regulation, and I think they’re very scared to get into a place where you’re able to give someone a line of credit so easily,” Sumit explained.
“It’s another matter, where the money comes from [for BNPL loans]? Right now, private equity (PE) and venture capital (VC) financing are the only things that subsidize the BNPL business, and I don’t think banks have such an advantage, ”he reported.
Banks are responsible for managing their clients ’money within the bank and do not have the same flexibility to borrow money as easily as the BNPL.
Sumit predicts that if banks intend to offer this flexibility, they will only do so in the arms of their fintech, as CIMB has Touch ‘n Go eWallet, while Maybank has Grab.
The ultimate goal is to work with each other
From Ian’s point of view, banks are neither competitors nor BNPL providers trying to dominate them. He believes that collaboration with banks has real value from a funding point of view and regulation.
“We take a collaborative approach with financial institutions, including banks, to explore how we can work,” he said.
Ian added that some banks have already approached Ablr to explore collaboration in the industry to create better products together.
Conor said Visa is helping fintech players create a scoring model for risk assessment.
“We are helping non-bank finteches to better understand how consumers behave and how they finance BNPL transactions. They better understand what level of credit to give the consumer, what level to add and when to remove,” he explained.
Featured Image Credit: Ian Ow, Founder and CEO of Ablr / Sumit Kumar, Boston Consulting Group (BCG) Partner and Managing Director / Conor Lynch, Visa Consumer Solutions Manager / Amra Naidoo, Accelerating Asia Founder and CEO
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