Earlier this year, I was asked to comment on the ‘buy now pay later’ (BNPL) operators earlier this year by The Edge Malaysia.
What is ‘buy now pay later’?
To recap, a BNPL is a service that allows consumers to buy things at 0% interest on an equal instalment basis. Currently, BNPL services are not regulated at the moment as the BNPL business falls within the ambit of a factoring agreement (you can read more about the current law on the feature).
In the past several months since the feature on The Edge was published, there have been more and more consumers buying things online (thanks to the pandemic which also increased the ecommerce sales in the country). Some consumers may not even have the financial means to buy the new iPhone in the first place without the BNPL operator’s feature to pay for the phone on an instalment basis spread out in several months period.
Regulatory trends around the world on BNPL service
This month, Malaysia’s financial services regulator, the Central Bank of Malaysia (or Bank Negara Malaysia in Malay) has issued a statement that BNPL is not regulated by its entity (for some reason I cannot find the actual press release on BNMs official website). It appears that the regulator is monitoring the BNPL operators closely.
It may likely that the regulator may have to access eventually whether to come up with a new set of rules to regulate the BNPL industry. This trend is consistent with other leading financial regulators such as the supervision by the United Kingdom’s Financial Control Authority and recently Singapore’s Monetary Authority of Singapore to regulator the BNPL operators.
Is BNPL service so bad?
One of the key areas why the regulators are so concerned about the BNPL operators is surrounding consumers reliance on BNPL to buy things which may end up increasing the country’s household debts. Someone with poor financial literacy may end up overspending and buying stuff that he may or may not need in the first place. As a result, he may have to incur a higher penalty or fee due to late payment if he misses any instalment payment.
On the other hand, BNPL operators have argued that customers now have the ability to take control of their cash flow by spreading out the payments in several months instead. Additionally, the BNPL operators have allowed small businesses and online shops to thrive by helping merchants sell the products sold online faster and clearing up the inventory (by giving consumers the option to buy the things they want without paying a lump sum amount).
What will be the likely scenario for BNPL operators in Malaysia?
Ultimately, financial literacy and personal finance are key aspects that the regulators should be looking at at the same time to help more Malaysians manage their personal cash flow and buy things more responsibly. The pandemic has not just affected the livelihoods of people on the streets but also small businesses and retailers. If the regulator decides to regulate the BNPL industry, it may likely that the regulator may also impose a rule for BNPL operators to promote prudent spending such as asking their customers to buy only things that they can afford.
If the country’s household debt may end up increasing as a result of continuous reliance on BNPL service by consumers in Malaysia, our regulator may have no choice but to come up with some rules. For instance, BNPL operators may have to ensure that they impose a more stringent credit scoring system to ensure that only financially prudent consumers would be able to use the BNPL service.
Buy now pay later is here to stay in Malaysia, but regulators everywhere around the world will have a tough balancing act to ensure that they are promoting financial innovation but also at the same time ensuring financial prudent particularly the poor.