JAKARTA: Indonesia’s “Buy Now, Pay Later” (BNPL) payment system has grown rapidly in recent years. However, its popularity has come with rising concerns over the mounting debt many young consumers accumulate. Financial regulators are now working to introduce tighter controls to prevent further debt spirals that could compromise long-term financial stability, particularly among young people.
The alarming growth in debt and non-performing loans
According to the latest AsiaNews report, debt accumulated through BNPL systems reached 30.36 trillion rupees (US$1.8 billion) in November 2024, a 42.68% increase from the previous year. A worrying 3% of these debts have become non-performing loans (NPFs), meaning consumers have not repaid them.
This surge in unpaid debt is alarming Indonesia’s Financial Services Authority (OJK), which is implementing new measures to protect borrowers and prevent them from falling into long-term financial traps. Starting in 2027, users of BNPL services must be at least 18 years old and have a minimum monthly income of three million rupees (approximately US$185) to access these platforms.
OJK’s head of special financial institution supervision, Mr Ahmad Nasrullah, stressed that these measures ensure that consumers only take on debt they can repay, particularly younger individuals who may be at risk of overextending themselves financially. “We don’t want the younger generation to get caught in debt while they can’t pay it,” Mr Nasrullah explained during a January media briefing.
Risk of long-term financial consequences for young consumers
The surge in BNPL usage has been nothing short of explosive. Since 2019, BNPL contracts have risen sharply, with 79 million contracts recorded in 2023 alone—an increase of 144.35% over four years. Among the users, nearly 43.9% are between the ages of 26 and 35, while 26.5% are young adults aged 18 to 25. This demographic typically uses BNPL services to purchase clothing, electronics, and household items.
However, this easy access to credit is not without its dangers. Experts warn that young consumers are increasingly rejected for other types of loans, such as home loans, due to poor repayment histories tied to their BNPL debts. Mr Nailul Huda, a digital economy expert at the Center of Economic and Law Studies (CELIOS), highlighted how these unpaid debts are recorded in the Financial Information Service System (SKIL) database banks use to assess creditworthiness. “When they apply for other financing in the future, such as the Home Ownership Credit, they would be rejected by the banking system,” said Mr Huda.
Proposals to address these concerns include raising the age limit for BNPL users to 24 or 25 and increasing the minimum income requirement. The aim is to ensure that borrowers do not take on more debt than they can realistically repay. Mr Huda argues that many borrowers are pushed to their limits as they take on loans well beyond their capacity, with credit limits reaching as high as 50 million rupiahs despite incomes as low as five million.
As the BNPL market continues to grow, the challenge will be balancing consumer freedom with financial responsibility, ensuring that the convenience of easy credit does not come at the expense of Indonesia’s financial stability.