PETALING JAYA: The fast-growing buy now pay later (BNPL) space which is expected to be regulated and come into force by the end of this year under Phase 1 of the Consumer Credit Act (CCA) is timely, as it will ensure responsible lending and help the vulnerable from falling into debt traps.
With the rising cost of living from higher inflationary pressures, industry observers said it was high time that BNPL schemes be regulated to help vulnerable individuals and groups, including micro and small enterprises, from being debt-laden.
The global economic slowdown anticipated this year would see higher debt levels among the lower-income group, and as such, the regulation placed upon the local BNPL market is timely, said experts.
Experian Information Services Malaysia chief executive officer Dawn Lai told StarBiz that upon the enactment of Phase 1 of the CCA, consumers should expect less accessibility to BNPL services, as they would be required to perform credit checking and establish affordability assessments.
“This might then affect non-bank BNPL players, as sales from collaborated merchants and retailers may drop.
“We believe that all lenders will benefit from the broader participation by BNPL providers in the credit reporting system, as it provides a clearer picture of consumers to minimise losses and greatly assist with responsible lending,” she noted.
Experian is a leading global information services company, providing data and analytical tools to clients worldwide.
Under Phase 1 of the CCA, which is envisioned to run from 2023 to 2024, those that would come under the Consumer Credit Oversight Board’s (CCOB) regulatory and supervisory oversight are BNPL, factoring and leasing companies, as well as impaired-loan buyers and debt collection agencies.
Phase 2 (2025-2029), on the other hand, would see hire-purchase companies, credit sale providers, moneylenders and pawnbrokers come under the CCOB.
To enable this, the CCA would be reviewed and expanded.
In Phase 3 (2030 onwards), the CCA and relevant legislation would be reviewed further to rationalise the conduct, regulation and supervision of all financial service providers.
“Across the region, we are seeing BNPL players being regulated in different markets and age restrictions are now placed to safeguard younger consumers.
“In Singapore, the BNPL Code of Conduct has implemented an age limit to above 18 and we believe that these measures are a step in the right direction to help consumers safeguard themselves from potential repayment issues,” Lai added.
According to a report by Research and Markets, the Malaysia BNPL market is growing steadily and expecting a compounded annual growth rate of 35.4% between 2022 and 2028.
The BNPL gross merchandise value is also likely to reach US$6.9bil (RM29.6bil) by 2028.
Among some of the leading BNPL players in Malaysia are Atome, FavePay Later, Hoolah, Grab PayLater and SPaylater.
Lai said the market in Malaysia has also witnessed the emergence of innovations like the BNPL service on credit cards and insurance.
An example would be the partnership between CIMB Bank and payment platform Fave in July 2022, as well as the collaboration between Malaysian payment provider solution GHL Systems and Grab Malaysia to roll out BNPL services for in-store merchants.
Based on recent developments, Lai opined that more banking institutions in the country would provide BNPL services to their customers in the next three to four years.
This will be either through strategic partnership with BNPL players or by launching their own service.
Businesses would also look to adopt BNPL as an alternative form of payment to cater to the increasing customer needs, she said.
BNPL schemes provide consumers the option to make purchases with 0% interest through monthly instalments.
This may provide an alternative for consumers to gain quick access to financing due to its low barriers of entry, convenience and greater repayment flexibility, Lai noted.
Experian’s 2022 Global Insights Report found that 17% of Malaysian consumers who were surveyed have used BNPL in the last six months.
It said 46% are very likely to use it again in the future.
The top transactions for BNPL in Malaysia are for beauty and wellness products (67% of surveyed consumers).
The average basket size for Malaysian consumers using BNPL is for big-ticket items costing between RM4,300 and RM8,600.
On another note, Lai said: “Besides regulations being put in place to regulate BNPL users, it avoids vulnerable groups from becoming trapped in BNPL credit.”
She said Experian seeks to deliver more transparency to the financial services industry and drive financial inclusion while ensuring responsible lending.
Lai emphasised that reporting of BNPL payments will be crucial in achieving this.
“In Singapore, for example, we are operating Asia’s first BNPL bureau, advocating for consumer affordability. There is the need to tackle the issue of credit stacking among BNPL users.
“Along with the BNPL Code of Conduct, a BNPL bureau could potentially safeguard consumers against credit risks and foster greater trust and transparency between BNPL providers and the customers they serve.”
In the United States, Experian was the first to start a BNPL bureau in the world in the Spring of 2022, providing consumer credit scores and real-time insights to drive more inclusive and responsible lending.
“Instead of focusing on the ‘risks’, we should be focusing on whether BNPL users are becoming indebted and if they have a good understanding of the product, which would in turn be key to safeguard consumers when both aspects are well-managed,” Lai said.
