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Welcome to Advent: SEA, our series highlighting Southeast Asian tech innovations, products, inventions, discoveries, startups, & personalities.
The big appeal behind credit cards has always been the opportunity for users to defer a payment for something they want immediately. Want a new phone, wallet, pair of kicks, or fancy meal? Today, right now? Absolutely. Get it now and pay for all of it later when the bill rolls around next month.
The idea is all about convenience and the idea – or perhaps illusion – that they have more money to spend in the moment, and the enduring capitalist spirit has ensured the longevity of credit cards for the foreseeable future.
However, a new kid on the block is aiming to grab a slice of the action enjoyed by credit cards. In theory, it functions quite similarly to credit cards in the way that it allows buyers to defer payments for purchases they can enjoy immediately.
It’s called “Buy Now, Pay Later”, or BNPL for short, and it’s very probable that you’ve already heard of it or have already used such a service at some point.
What is BNPL, exactly?
For those unfamiliar with the term, BNPL is a method of payment that lets you – the buyer – make a purchase instantly, but pay for it in separate instalments in the future.
In most cases, you’ll have to make an upfront payment – like you would when buying a home or a vehicle – and then pay the balance via interest-free instalments over the next three to four months.
Depending on where you shop, the BNPL option can be had both online and in stores, and will usually necessitate that you are above 18 and already have a credit card before you’re eligible for the service.
The hoolah website displaying some of its partner merchants that you can already shop with using BNPL. IMAGE: Screenshot from hoolah.co
Of course, the interest-free instalment bit will no doubt entice buyers to use BNPL, but similar to credit cards, late payments do come with penalties. More on that later.
While buyers in countries like the U.S. and Australia have long become acquainted with the concept, consumers in the Southeast Asia region will find the concept to be still fairly nascent and novel.
Despite that, there are already several providers that have made moves to offer BNPL payments. For example, names like Split, hoolah, Atome, Jungle, and Grab among others have already firmly established themselves in multiple markets across the region, with some of them operating in more than one country.
So, despite the concept still being quite new, everything is already in place for the concept to take flight, which might be soon enough judging by how successful such services have been in regions with more advanced BNPL adoption.
BNPL is great…
If you haven’t yet caught on, the features of the BNPL payment method all lead up to one thing – the appearance of risk-free instant gratification.
After all, a three-month payment period is manageable for most goods purchasable under such payment schemes, and is also more time afforded to buyers compared to credit cards that demand payment as soon as the next month rolls around (or else).
This all ultimately equates to better turnover rates for businesses who can now offer an alternative payment solution to their customers – one that is ostensibly friendlier and more manageable than full upfront payments or even credit cards.
Stuart Thornton, the founder and CEO of BNPL provider hoolah explained that merchants partnered with his company have seen an uptick of 20 to 40 percent in conversion rates and basket sizes, and cited the example of one of his clients – gaming chair makers TT Racing – who experienced a 30 percent average increase in overall order value after integrating BNPL into their operations.
Additionally, research done by PYMNTS.com revealed that businesses were more likely to get repeat buys from customers who appreciate the availability of a friendlier payment option – about 40 percent of participants who prefer BNPL payments said in a survey that they’d avoid businesses that did not carry a BNPL option.
This is true especially during the era of the COVID-19 pandemic, where the BNPL payment method has gained some traction with buyers who need to buy items but find themselves financially constrained in the short term.
“There is the necessity of making purchases to deal with the new normal during the pandemic; as mentioned people are becoming more thoughtful about price and appreciate the importance of personal cash flow,” said Thornton to Mashable Southeast Asia. “With BNPL, they get to manage their monthly budgets by paying just one third of their purchase.”
Plus, it also helps that the onboarding process for most BNPL services is a hassle-free procedure, and pays merchants almost as soon as funds are received from the customer, which limits any concerns about cashflow problems.
Overall, it seems like a win-win proposition for both merchants and consumers, right? Not completely.
BNPL isn’t so great…
Of course, the BNPL concept isn’t without its detractors – many say that it’s a pathway to debt, possibly even worse than credit cards, and it’s easy to see why that is.
With a BNPL payment scheme, the barrier to entry is extremely low, making it easy for spendthrifts to inadvertently pile up the purchases without realizing it. This then leads to the problem of debt accumulation and possible late payments (remember when I said we’d come back to this?).
Like credit cards, late payments for BNPL instalments come with penalties. If you’ve missed a payment or two, it won’t seem all that horrible. But as we’ve seen with credit card debt, many people have been historically awful at being mindful of spending within their means.
In Australia – a comparatively mature BNPL market, The Australia Securities and Investments Commission (ASIC) revealed data showing that 21 percent of BNPL users failed to make payments on time from November 2019 to November 2020.
This equated to over US$33 million in fee revenues, and many of these individuals raked in debt that ended up requiring them to cut back on essentials such as food and everyday household items. Even worse was the fact that many of these debtors were forced into taking additional loans just to repay the debt created by excessive BNPL spending.
While the core problem clearly lies with users’ inability to curb their spending, BNPL providers have been asked to shoulder some of the responsibility in this regard. Thankfully, some have responded proactively.
In the case of hoolah, the mechanism to combat such a problem from occurring is via a risk detection engine that comes into play as soon as the provider finds out that a customer has overspent or over-borrowed.
On their particular platform, once a borrowing limit is hit, a user must first repay all outstanding payments before being allowed to use the service again.
“It’s ok for people to want things and to shop, as long as it’s responsible. It’s really about allowing customers to take control of their spending rather than overspend,” explained Thornton. “There are instances where we’ve rejected transactions when we think people are moving towards the wrong direction.”
“This is another reason why we pride ourselves on taking on this responsibility to educate consumers around topics such as personal finance and financial literacy that we share regularly on our platform.”
Other BNPL providers have also heeded the call, and some have introduced strict Know-Your-Customer (KYC) measures to filter out users with poor credit ratings more prone to accumulating debt.
However, there are still concerns regarding the openness of the wider BNPL system and loopholes that can be exploited buy spendthrift users, such using separate loan facilities from other financial institutions to repay already-existing debt.
One obvious solution – which has been mooted quite heavily – is to introduce regulations that place a hard limit on such expenditure and moderate an industry that is still yet to fully form an identity – and one that is targeting the wallets of younger spenders, to boot.
The future of BNPL.
Due to its newness, there exists plenty of opportunity within the BNPL landscape for all stakeholders involved. As already mentioned, there is no dearth of service providers, and the upsides for both merchants and consumers are evident.
Growth in the scene is also expected to carry on an already bullish trend, with the Southeast Asia market cap expected to grow from US$7.3 billion in 2019 to US$33.6 billion in 2027.
IMAGE: Retail Asia
Even if it’s not yet palpable, the number of users has also grown significantly, and BNPL providers have continued to receive funding from optimistic investors.
“We predict in the next three to five years, the BNPL market in Asia will be in the billions, as unbanked, underbanked and banked consumers see BNPL as a viable option to invest in a quality life while spending responsibly,” said Thornton, who echoed the sentiment.
Don’t be surprised if end up paying for your very next purchase via BNPL.
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ที่มา : Mashable