Buy-now-pay-later schemes trigger MAS concerns over consumer debt risk
MAS review alongside other government agencies comes amid concerns over unseen debt and potential financial distress as BNPL products are largely unregulated, being a relatively new sector.
The speed and ease with which consumers can obtain unregulated credit via buy now, pay later (BNPL) schemes have sparked growing concerns over unseen debt and potential financial distress.
This has prompted several authorities, including Singapore's, to look into regulating the industry as the use of BNPL products continues to grow.
The Monetary Authority of Singapore (MAS) on Thursday confirmed that it is, along with other government agencies, "reviewing the appropriate regulatory approach" for such schemes.
BNPL firms offer zero-interest instalment payment plans for retail goods, appealing to their target market of credit-starved, cash-strapped millennials and Gen Zs.
These schemes are a form of unsecured consumer lending, with late fees imposed if repayments are missed. But as BNPL products are relatively new, the sector is still largely unregulated.
This means that firms carry out their own internal credit checks on customers. There are also no concrete industry guidelines on the marketing of BNPL products.
Should MAS and other government agencies assess that a regulatory framework needs to be applied to BNPL providers here, it will be "risk-proportionate and evenly applied across providers" to effectively mitigate risks to consumers.
An MAS spokesperson told The Business Times: "Steps taken by the industry to address such risks will be taken into account, as will potential benefits that BNPL schemes could bring to consumers and businesses."
While BNPL schemes can be a convenient option for consumers who wish to pay for their purchases in instalments, they may be at risk of spending more than what they have budgeted for.
"Where consumers are not careful and overspend, such schemes can still result in overstretched finances and cause potential financial distress," said the MAS spokesperson.
The regulator warned that consumers should bear in mind that BNPL plans are "still debts to be repaid", with potential late fees and charges imposed if repayments are missed.
In Singapore, about 9 per cent of consumers surveyed by financial comparison platform Finder have had to pay a late fee. About 38 per cent of Singaporeans, or 1.1 million people, have used a BNPL service as at last year.
In response to queries, local BNPL fintech Atome told BT that it is supportive of regulations and will "actively participate" in discussions and efforts to ensure consumer interests are protected while fostering innovation.
Its chief executive officer David Chen said: "We operate and comply with existing legal frameworks and we've been in active dialogues with regulators. Customer experience and satisfaction are always at our core, and we strive to serve the merchants and consumers with the best products and services."
Grab, which recently expanded its PayLater option to selected e-commerce sites in Singapore and Malaysia, said it welcomes MAS's review.
"We trust that any regulatory framework implemented will be evenly applied across providers. We also look forward to consulting with the authorities to ensure that BNPL schemes are regulated in a fair and inclusive manner for all stakeholders involved," a Grab spokesperson told BT.
Other financial regulators have started to clamp down on the industry as the amount of unregulated debt continues to rise.
On Feb 2, the UK said it would legislate BNPL credit as soon as possible, which would mandate providers to make affordability checks before lending to a customer.
The use of BNPL products nearly quadrupled in 2020 and is now at ï¿½2.7 billion (S$4.9 billion), with five million people using these products since the start of the pandemic, data from the UK's Financial Conduct Authority showed. More than one in 10 customers of a major bank using BNPL were already in arrears.
In Australia, BNPL regulatory changes are also expected to come into force this October.
These obligations will require the industry to design fit-for-purpose products that meet consumer needs. They will also need to take steps to ensure their products are reaching the right consumers, said the Australian Securities and Investments Commission (ASIC) in a statement last year.
According to the ASIC, the number of BNPL transactions in Australia jumped about 90 per cent year on year to A$32 million (S$32.6 million) in the financial year 2018-19. ASIC's research showed that one in five consumers have missed payments.
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