With the digitalisation of financial services becoming a permanent fixture of Singaporean life now, the so-called ‘Buy Now, Pay Later (BNPL)’ payment method has become a new option for many Singaporeans. With BNPL transactions currently amounting to SGD 440 million only, a measly 0.5% of the SGD 103 billion in credit and debit card payments in 2021, BNPL is certainly only in its infancy. The likes of Atome, Hoolah, and Grab PayLater are some of the major BNPL companies in Singapore.
BNPL allows Singaporeans to pay for their purchases in short instalment periods without any interest charges or fees. Typically, those low in cash liquidity (not having enough cash in hand) stand to benefit the most from BNPL payment methods as they can still buy bigger ticket items and spread the payment over multiple months. With inflation dominating the concerns of most Singaporeans in a Blackbox study in mid-2022, BNPL offers Singaporeans an avenue to enjoy their purchases in a financially manageable way.
BNPL is not just another credit card option
Many would often confuse BNPL payment methods with credit cards. There are indeed multiple similarities between both payment methods – ranging from 0% interest charges and fees during the instalment period, convenience especially with e-commerce shopping, and a multitude of promotional incentives.
However, there are obvious differences between BNPL and credit cards too. The structure of late payment fees, the interest incurred with such late payments, and income requirements (i.e. credit cards typically require a minimum annual income of $30,000 for Singaporeans but BNPL has no such minimum income requirements) are some of the areas where these two payment methods differ.
Youth approval: BNPL signifies the changing approach to financial planning
The ongoing inflationary pressures have motivated Singaporeans to find alternative financial models to meet their spending needs and financial planning, especially in the short term. Unsurprisingly, younger Singaporeans, especially Millennials and Gen Zs, are more attracted to BNPL payment services since ‘financial barriers’ such as minimum incomes and credit histories are not applicable/required when using BNPL payment services
While BNPL has typically been associated with big-ticket purchases such as furniture or electrical appliances elsewhere, Singaporeans have taken a different route with BNPL. Small ticket purchases amounting to less than $100 are common among BNPL users in the island nation.
Growth despite small purchases and debt wariness
A growing fear with BNPL’s rising popularity is Singaporeans allowing their personal debt to be a function of debt as opposed to being a function of income. With credit cards, for instance, credit limits are determined typically by the monthly incomes of credit card holders which is a safer ‘debt as a function of income’ situation for Singaporean consumers. The amount of debt one can incur with BNPL is not tied to any income, leading to the situation of personal debt being tied to debt. This is dangerous as younger Singaporeans, especially those less conscious about their spending habits, can free fall into unserviceable debt.
For many BNPL companies, tying up with e-commerce platforms such as Zalora or Shopee might be the way to go. BNPL is expected to account for 8% of e-commerce transactions in Singapore by 2025, doubling in just 5 years. These e-commerce platforms typically see small-ticket purchases and offering discounts or cashback rewards for using BNPL payment methods for these purchases could tempt Singaporeans further.
Banks have also begun offering BNPL-like options. DBS for instance, has a My Preferred Payment Plan which provides very similar terms as a BNPL payment plan. The key difference is that bank’s BNPL-like options are still tied to monthly incomes since payment plans are an extension of the banks’ credit card products. Banks might find their BNPL-like products to be popular among Singaporeans who are wary of taking up unnecessary debt.
Regulators need to manage BNPL conduct, not BNPL itself
Given Singaporeans’ likely financial prudence, especially during an inflation crisis (our data shows that younger Singaporeans are well aware of its impact on their lives), it appears that regulating BNPL itself is less of a priority since BNPL payment providers already have safeguards such as age requirements and spending freezes if there are overdue payments to prevent from overspending.
However, the main area of concern is the conduct of BNPL companies. Regulators such as the Monetary Authority of Singapore (MAS), the Consumers Association of Singapore (CASE) and Singapore FinTech Association (SFA) are being brought in as there have been an increasing number of consumer complaints against BNPL companies. Most complaints centred on being unable to seek refunds and worries about misleading consumers into a false perception of increased purchasing power. Other countries have seen complaints such as incorrect information displayed by BNPL apps and attempts to collect non-existing debts by BNPL companies.
Hence, while the inherent risks of BNPL as a concept appears to be less of a concern in Singapore, developing an industry guideline for BNPL companies is most prudent at this junction. Guidelines on the frequency of BNPL ads, and clearer displays of amounts payable, and dispute resolution between consumers, retailers and BNPL companies would be useful endeavours. Information about the risks of BNPL need to be communicated to consumers. This should ensure that the BNPL industry grows in Singapore without compromising consumer interests.
BNPL has emerged as a flexible payment method in a time of low cash liquidity and inflation. To understand the underlying factors driving the adopting of BNPL in Singapore and beyond, get in touch with us at connect@blackbox.com.sg
Author: Blackbox Research Team
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