Will buy-now-pay-later take over credit cards?

The Buy Now-Pay-Later (BNPL) space is booming despite being a relatively new category in SEA. In fact, the industry is expected to grow from US $ 7.3 billion in 2019 to US $ 33.6 billion in 2027. Globally, it is expected to reach US $ 1,000 billion by 2026.

This is in part due to the accelerated growth of e-commerce, coupled with the financial uncertainty caused by the pandemic. BNPL has become more attractive to consumers looking for financing options with more convenient alternative payment methods.

As this space continues to grow in SEA, the question is whether BNPL will take over credit cards? Wild Digital SEA 2021 brought together a panel of stakeholders representing various areas of the financial ecosystem to discuss BNPL’s sustainability and its potential impact on traditional banking systems.

Moderated by Amra Naidoo, co-founder and sponsor of Accelerating Asia, the discussion was joined by:

  • Ian Ow, Founder and CEO of Ablr;
  • Sumit Kumar, Partner and Managing Director of the Boston Consulting Group (BCG);
  • Conor Lynch, Head of Consumer Solutions at Visa.

BNPL’s attractiveness

BNPL offers more clarity than credit cards

One of BNPL’s attractive factors, according to panelists, is the clarity it offers to buyers, especially if they are less aware of how to leverage credit cards to their own advantage.

Suppose you buy an item worth RM 900. Most BNPL systems like Split and Hoolah allow you to split your payments into 3 installments over a 3 month period. Therefore, you will pay 300 RM now and another 300 RM for the following months.

“BNPL actually has a payment plan in place for customers, so I don’t think BNPL is going to screw up people’s spending and get them into debt. They give people transparency about how much they can expect to pay, ”Sumit said.

This is as opposed to credit cards which tell customers that they only have to pay 5% now and have the option of paying the full amount later, albeit with some interest. he adds.

“But if you think about it, credit cards also use a BNPL system, and you have 60 days to pay it off without interest,” Conor pointed out. “If you pay for everything, you’re doing fine. But the point is, a lot of people don’t, and it becomes less clear and more difficult to manage payment terms without being subject to interest rates.

Serve less creditworthy customers

BNPL is able to serve a segment of customers who wish to purchase products and pay for them later, but are not eligible for credit cards. They include the younger people who are less creditworthy in the eyes of mainstream banks, according to Conor.

As the CEO of a Singaporean BNPL service, Ian has chronicled the generational change on social media, where young audiences have moved from Facebook to TikTok. They always consume content, only in ways that are relevant to the moment they are.

“What we’re doing is looking at how this demographic consumes financial services and credit, and how we can use that as a starting point to educate them and enable them to learn about credit and how to use it sustainably. ”said Ian.

Conor added that doesn’t mean people of older generations are less likely to board the BNPL train. He said: “We are all human beings and we want clarity. Our research shows that when presented to them in the right way and offered by the right lender, BNPL is attractive to older people as well.

BNPL wakes up banks

Conor noted that while it may look like BNPL will overtake credit card usage, the service actually delivers a very good customer experience.

“It shows the value of fintech and the value of fresh thinking when applied to financial services,” he said. “Rather than come at the expense of traditional credit cards, this will likely end up helping credit cards become a much better consumer experience.”

To get a piece of the BNPL pie, Connor gave an example where Visa worked with HSBC in Malaysia to allow HSBC credit cardholders to spread their payments in installments. AKA, using a BNPL system but via a credit card.

The objective of this offer was to proliferate BNPL as a solution in Malaysia in other markets, extending it from credit to debit. “We even want to make it available to those who can purchase goods on websites or when they are outside of their home country on a BNPL basis,” Conor said.

BNPL and fintech in general are serving as a wake-up call to traditional banks, making them realize that there are consumer segments outside of those traditionally looking for credit cards.

But there are some hurdles to overcome

There’s a reason traditional banks have been so slow to innovate, and that’s because banks are much more regulated than fintechs, Sumit said.

Unlike traditional banks which require a lender to provide documents like their EPF, financial statements, salary details, etc., BNPLs can forgo these steps. “Banks play within the limits of the regulations, and I think they’re very scared to step into the space where you can give someone a line of credit that easily,” Sumit explained.

“The other point is where does the money come from? [for BNPL loans]? Right now, private equity (PE) and venture capital (VC) funding are the only things subsidizing BNPL’s business, which I don’t think banks have such an advantage on, ”he said. he revealed.

Banks are responsible for managing their clients’ money within the bank and do not have the same flexibility to lend money as easily as BNPLs.

Sumit predicts that if banks plan to offer such flexibility, they will only do so under their fintech arms, like CIMB has Touch ‘n Go eWallet, while Maybank has Grab.

The end goal is to work together

From Ian’s perspective, banks are not a competitor, and BNPL’s providers aren’t trying to dominate them either. He believes there is real value in working with banks from a financial and regulatory perspective.

“We are taking a collaborative approach to see how we can work with financial institutions, including banks,” he said.

Ian added that Ablr has already been approached by a few banks to consider partnering in the industry to create better products together.

Conor stepped in, saying Visa helped fintech players create a scoring model for risk assessment.

“We help non-bank fintechs better understand how consumers behave and how they finance BNPL transactions. They are better able to understand what level of credit to give the consumer, what level to add and when to withdraw it, ”he explained.

  • You can read more about the Wild Digital panel coverage here.
  • Read more fintech content here.

Image Credit Featured: Ian Ow, Founder and CEO of Ablr / Sumit Kumar, Partner and Managing Director of Boston Consulting Group (BCG) / Conor Lynch, Head of Consumer Solutions at Visa / Amra Naidoo, Co-Founder and Partner General of Accelerating Asia

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