By Jessica Wee

Without revealing my age, my first encounter of BNPL in the 90s was at Courts Mammoth where you could own your dream home furnishing at a small cost every month (tag line: Tanpa Cengkeram! = without being tied down).

BNPL is a type of short-term financing that allows consumers to make a purchase but pay for it later or via instalments over a short-term period. 

Fast Forward to 2021, how big is the BNPL market worldwide? Studies show that only 2% of all e-commerce is done via BNPL which means there is a lot more room to grow. 

Let’s look at the current landscape in Malaysia. The popular BNPL companies are Atome, MyIOU, Hoolah, Grab Paylater, Pine Labs, Paidy, Akulaku, Flipkart, Myntra, Zest and etc. 

What’s the catch? Don’t miss your payment or risk having to pay 1% (or more) interest per month on your outstanding amount every month – compounded. So your Effective Interest Rate is above 12% per annum (p.a). On top of that, they will also charge you a late payment penalty.

The credit card businesses have also jumped into their own version of BNPL by offering to spread your payment terms for certain expenditures under its ‘Flexi Payment Plan’ over the tenure of 6 – 24 months. Flat interest rate ~9.88% p.a ie Effective Interest Rate of ~17% p.a for the tenure of 6-24 months. 

In the global market, here are the bigger players are:

Klarna – Valued at USD45 Billion

Afterpay – valued at USD29 billion 

Others include Paypal (USD280 billion), Affirm (USD31 billion), Grab (USD40 billion), SEA ltd, 

How big is the future projection of the BNPL market? It is estimated that BNPL will grow to around 12% of all e-commerce volume in the next 2 years. That’s 6X growth compounded on top of e-commerce growth! Compounded annual growth rate for BNPL for the next 2 years is a whopping 90% globally, to USD700 billion.

Closer to home in South East Asia (ASEAN), the growth will be even more staggering, projected to grow at 145% per annum for the next 2 years! With the young ASEAN demographics and signs of adoption is projected to reach USD27 billion in 2 years. Funding for BNPL in ASEAN is already growing faster than Asia Pacific as a whole with 10% of global funding coming to ASEAN in the past 5 years.

What’s in it for the merchant providing BNPL? The key advantage of merchants offering BNPL services is that they tend to see an increase in conversion i.e., the percentage of visitors who end up buying something from their online store and ring up a larger basket size (spend more!). BNPL players are focusing on the places where banks do not. The focus is on the underserved – another reason the poor get poorer! BNPL companies are able to do that because:

  1. They keep the payment schedule simple. 
  2. They embraced millennials with limited credit history. 
  3. They use data better – both online and offline integrating POS and merchants. 
  4. With a user-friendly app, BNPL adds value to millennials by doing away with the need for credit cards and offering interest rate free payment schedules.
  5. They will keep sending auto-reminders to customers so that they do not miss payments so that no interests will be charged. But if you have no money to make repayment that month, it doesn’t matter how many reminders you get!

BNPL is undeniably a great business for the financial industry as there is such low penetration in ASEAN. 

As a consumer, it’s never a wise move to take a loan on an item which will not appreciate in value. In 2021, consumer spending is up, the economy is reopening, and consumers are ready to shop for the holidays.  Here’s what to look out for before shopping with BNPL.

Advantages of BNPL

  • Can split up your payments. This might make an expensive item more attainable since you don’t have to pony up a lump-sum.
  • There’s no hard credit pull. Unlike applying for a new credit card, BNPLs are easier to qualify for. This means that someone who is new to credit or doesn’t have a strong credit profile might find it more appealing to make a purchase this way.
  • Simple to do. Online shoppers in particular may find the immediate gratification of buying what they want in easy-to-understand terms a preferable way to shop.
  • Can help manage cash flow. A BNPL can help someone buy what they need at a payment plan that fits their budget.

Disadvantages of BNPL

There are some potential pitfalls to be aware of with this type of financing offer.

  • Terms may vary. Before committing to a BNPL loan it’s important to know the terms of the deal. For example, 0% interest may not last the length of the loan, leaving you with expensive finance charges down the line and there could be sky-high penalties if you skip or miss a payment.
  • Some come with fixed fees. These types of programs add a fixed fee to your monthly payments, which can cost you extra over the life of the loan vs. just buying the item outright.
  • They don’t help build credit. If you pay on time, it won’t help your credit. Late payments, however, may be reported and have a negative impact.
  • May encourage overspending. The ability to pay off an item over time can make a purchase seem more affordable.

buy now pay later

The effect of compounding interest will work against you in paying off the loan. Think carefully before you agree to sign up for BNPL! You are beautiful inside out, you really do not need that extra pair of pink furry shoes 😉

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