Should “Buy Now Pay Later” (BNPL) schemes be regulated?

What is “Buy Now Pay Later” (BNPL)?

Buy Now Pay Later (BNPL) is a type of short-term financing scheme. As the name implies, it allows consumers to “buy now” and “pay later”, often split into interest-free instalments.

What are the concerns and issues with “Buy Now Pay Later” (BNPL) payment options?

While it may empower consumers and is a shot in the arm for retailers, there are concerns that these “Buy Now Pay Later” BNPL platforms are a debt trap causing young people to overspend whenever they shop.

So how much did Singaporeans actually spend on “Buy Now Pay Later” BNPL schemes?
Are younger consumers really falling into these “debt traps”?
And will “Buy Now Pay Later” (BNPL) platforms be regulated?

What’s the actual status?

Good thing, Mr Desmond Choo, MP, Tampines GRC, posed a parliamentary question on this.

And it was answered by Mr Alvin Tan, Minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and Board member of MAS, on behalf of Mr Tharman Shanmugaratnam, Senior Minister and Minister in charge of MAS.

Money Playschool brings you the key points to note below.

What is the total value of “Buy Now Pay Later” (BNPL) transactions in Singapore in 2021?

“Buy Now Pay Later”, or BNPL, transactions have constituted a very small fraction of total consumer payments to date.

Last year, BNPL transactions amounted to around $440 million, which is less than 0.5% of the $103 billion in credit and debit card payments.

Do “Buy Now Pay Later” (BNPL) schemes offered in Singapore pose significant risks of consumer indebtedness?

BNPL schemes offered in Singapore currently do not pose significant risks of consumer indebtedness.

Some common features of BNPL schemes limit the extent of debt accumulation by consumers.

For example, BNPL providers typically suspend users from making further BNPL purchases once a payment is overdue. BNPL schemes also do not charge compounding interest on the outstanding amount, and cap the amount of late fees levied.

The risk of rapid debt accumulation by consumers through BNPL schemes is hence not large.

Have BNPL schemes disproportionately affected younger consumers in being over leveraged?

All BNPL providers in Singapore have also set a minimum account opening age requirement of at least 18 years old.

In fact, those who are 25 or older account for more than 85% of BNPL users here, and more than 90% of total BNPL transaction values.

Will the Monetary Authority of Singapore (MAS) regulate the “Buy Now Pay Later” (BNPL) sector?

MAS is closely monitoring the BNPL sector as such borrowings have the potential to grow rapidly, and studying the experience of other countries where BNPL schemes have taken off more strongly.

For now, MAS has assessed that effective industry self-regulation, through an industry code, should adequately mitigate the risks in the BNPL sector.

Under MAS’ guidance, the Singapore FinTech Association has launched a BNPL Working Group to develop a code of conduct for all BNPL providers.

The code, which we expect will be launched in the second half of this year, will seek to mitigate the risk of consumer over-indebtedness, and establish minimum safeguards to ensure that consumer interests are well-protected when using BNPL schemes.

You can read the full Parliamentary question and reply here.

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