Installment credit dates back to the 19th century when people purchased items and paid for them in small installments over time. However, in 2014, the Fintech industry re-invented and re-visioned this historical scheme as Buy Now, Pay Later, or BNPL; with Australian fintech, Afterpay, offering online shoppers an easy way to shop online using digital payment plans based on installments. 

Buy Now Pay Later is today’s version of installment payments, encouraging users to, as the name aptly suggests, buy now and pay later, for the most part, completely interest-free. Over the past year, there has been a steady momentum in the growth and expansion of BNPL. So, it’s no wonder as customers, in particular millennials, have become attracted to the scheme’s combination of immediate gratification and deferred payments. 

As far as payment methods go, BNPL offers users some of the following benefits:

• Saving time – giving user access to immediate purchases.
• Provides convenience – easy to shop and pay online. 
• Easy of use – approval of applications is faster and easier, usually done electronically. 
• Keeps credit score unaffected when payments are made on time. 
• For the most part, it is interest-free and can be cheaper than using credit cards.

The COVID pandemic has played a crucial role in fueling the adoption of BNPL. Movement restrictions led to the temporary shutdown of brick-and-mortar retail stores, triggering a growth in e-commerce and a shift in consumer spending habits. Globally, the BNPL industry is already worth US$97 billion and is only set to increase. As a result, researchers predict a 13.23% annual growth rate in the BNPL sector, hitting about US$680 billion by 2025. 

BNPL trends in the APAC region 

Despite relatively new entrants to the APAC region, some companies are already staking their claims on BNPL. Companies like Atome, Hoolah, Akulaku, and Pace lead the charge in various parts of Asia, creating massive impact. Moreover, the BNPL scheme has gained popularity and become the preferred online payment option of Gen-Zs and Millennials as it allows users to defer payments and access credit more readily.

APAC is a lucrative region for BNPL growth. The high internet connectivity, low access to credit cards, and a high unbanked population make it an excellent market for BNPL fintechs looking for new revenue streams.

A KPMG report found that BNPL, along with embedded banking and open banking have helped to keep investor interest in payments, garnering US$628.4 million of investments in Singapore, up from US$60 million in 2020.

In addition, banks are jumping on the proverbial bandwagon by partnering with BNPL fintechs. In some cases, they are also developing their own Buy Now, Pay Later offerings. In Singapore, about 38 percent of the population has used BNPL services thanks to its zero-interest rates and equal installments. 

Key statistics in the sector

• With an expected CAGR of 21.3%, Asia-Pacific will experience the fastest growth in the BNPL scheme. Chinese market is leading growth. 
• An IDC study shows that digital payment will yield an increase of 162% across Southeast Asia by 2025. 
• 3% of Singapore’s e-commerce market is BNPL, which will reach 13% by 2024. 
• There was a 280% increase in partner retail in Singapore between 2019 and 2020.

The risk of Consumerism in Buy Now Pay Later 

Buy Now, Pay Later allows financial institutions to market their services in an unlimited manner and without a need for merchants. While this sounds exciting and seems to be precisely what people want, some regulators worry that the trend might cause a significant increase in consumerism. 

During the pandemic, there was an increase in online activities, especially online shopping. Because of spending more time at home, people became glued to the internet and online products available for easy consumption. 

The temptation for impulse buying might be more difficult to resist by online scrollers. And this can signal the start of an unhealthy consumerist culture.

Consumers might incur debt and use credit in situations they really shouldn’t. In fact, 43% of Gen-Zers have missed their BNPL payments at least once in the past year. This has raised some concerns about consumer protection in financing options available to customers. 

To address this challenge, BNPL fintechs employ AI-based credit scoring to swiftly assess and either approve or reject user applications for BNPL services. Moreover, while customers are ultimately responsible for their borrowing choices, fintechs are actively harnessing AI expertise to mitigate risky lending. This approach aligns with similar AI-driven systems already utilized in the financial sector for issuing personal loans and generating credit reports.

How can BNPL encourage Financial Inclusion? 

APAC still has a large unbanked population, with an estimated 290 million unbanked adults in the ASEAN bloc alone. This has limited the ability of individuals to earn, borrow, as well as SME business owners’ capability to expand and grow. 

As various governmental and non-governmental agencies, along with private-sectors in APAC, prioritize financial inclusion, BNPL emerges as a crucial tool. The Global Partnership for Financial Inclusion (GPFI) has invested a lot into the financial inclusion scheme, recognizing it as one of the main pillars of the Global Development Agenda. 

By enabling purchases to be broken down into smaller, more manageable payments that can be made over an extended time period, BNPL empowers people to procure products they might not normally be able to purchase. By its very nature, BNPL is an agile and swift payment solution that augments people’s spending power. 

The COVID-19 pandemic has led to negative cash flows for many people. In such circumstances, schemes like BNPL (Buy Now, Pay Later) can be a lifeline. This is particularly true for migrant workers who are either unbanked or face strict credit qualification criteria.

BNPL offers soft credit checks and utilizes non-traditional data, making it easier for the underbanked to access credit. The application process is simple and convenient, contributing to the growth of financial inclusion in a country.