Amid the surge in eCommerce transactions, PayLater has emerged as a prominent choice among consumers for payments. — The Jakarta Post
THE widespread operation of buy-now-pay-later schemes, better known as PayLater, in eCommerce has raised concerns about the practice of white labelling, where consumers mistakenly believe the funding originates from eCommerce platforms rather than the finance companies providing it.
With over 29 million PayLater accounts and rising consumer complaints, it is crucial to address the lack of transparency and ensure consumers receive clear information about the true source of their financial products.
Amid the surge in eCommerce transactions, PayLater has emerged as a prominent choice among consumers for payments.
Consumers opt for PayLater due to various factors such as convenient credit access, appealing promotions and the flexibility offered in installment payments.
Based on data from the Financial Services Authority (OJK), as of June 2024, there were 29.5 million PayLater accounts, with 28.31 million borrowers and a total debt balance of 23.2 trillion rupiah (US$1.45bil)
PayLater is the outcome of a partnership between eCommerce entities and third-party entities, particularly finance companies. Consumers often perceive that the funding they receive originates from the eCommerce platform rather than the finance company. In reality, numerous eCommerce companies merely serve as intermediaries, facilitating the transfer of funds between finance companies and consumers for PayLater services.
Given the increasing number of consumer complaints related to financial services that are reported to the OJK, particularly 1,113 complaints related to PayLater from January 2023 to July 2024, it is crucial to enhance consumers’ understanding of the financial products and services employed to minimise the risk of consumer losses.
In adherence to the principles of openness and transparency regarding consumer protection in the financial services sector, it is significant to ensure that consumers receive comprehensive information about the PayLater provider that they use.
However, in practice, details about the finance company as the entity providing the funding are often presented inconspicuously in fine print at the bottom of eCommerce applications.
This practice, known as white labelling, is a practice where products or services from one company are marketed under another company’s brand, giving the appearance that they originate from the latter entity.
Essentially, financial service providers are required to provide accurate, correct and easily accessible information about their products and services, without the potential to mislead consumers.
This aligns with the regulations outlined in OJK Regulation No. 22/2023 on consumer and public protection in the financial services sector.
Fundamentally, the practice of white labelling differs from the process of channeling financing. Based on OJK Regulation No. 35/2018, finance companies are only authorised to engage in channeling if the risks associated with such activities are borne by the fund owner.
Nevertheless, in the context of PayLater services, it is important to note that eCommerce platforms do not own the funds.
Additionally, the entities permitted to collaborate with finance companies in channeling must be institutions that, in accordance with statutory regulations, are authorised to participate in financing collaboration through channeling.
Currently, there are no provisions specifying eCommerce platforms as entities permitted to engage in such channeling activities.
After the promulgation of Law No. 4/2023 on the development and strengthening of the financial sector, there are provisions that must be fulfilled by eCommerce platforms as intermediaries for funds in PayLater services in order to carry out their business activities.
Within the scope of the financing services business, the activities of providing, managing and operating the provision of financial services to bring together funders and recipients of funds in conducting funding both conventional and sharia principles directly through an electronic system using the Internet, are carried out by peer-to-peer (P2P) lending service providers.
Therefore, eCommerce platforms are required to obtain a licence as a P2P lending organiser from the OJK to be able to provide PayLater services.
Failure to comply with this requirement carries the consequence of criminal sanctions imposed on every person conducting business without the necessary permits, namely a fine of at one billion rupiah minimum or a maximum of five billion rupiah, as well as the imposition of other additional criminal sanctions.
In conclusion, licensing eCommerce platforms that offer PayLater services as P2P lending organisers brings about several advantages for consumers.
First, there is enhanced legal certainty for consumers, particularly regarding transparency and accountability from PayLater service providers.
Second, the OJK can effectively address and minimise consumer disputes related to the future implementation of PayLater services by adhering to P2P lending standards.
Third, it establishes mechanisms for dispute resolution and enforcement authority, enabling the OJK to impose sanctions on P2P lenders as PayLater service providers.
Lastly, Law No. 4/2023 on the development and strengthening of the financial sector mandates criminal penalties for unauthorised P2P lending activities if they provide PayLater services without permission from the OJK. — The Jakarta Post/ANN
Irfan Triawan and Alya Nabila are analysts at the OJK. The views expressed are the writers’ own.
