Singapore—Member of Parliament Cheryl Chan (PAP-East Coast GRC) was one of the officials quoted in a June 15 Bloomberg article as being concerned over a growing trend among young people who use “Buy Now, Pay Later” (BNPL) services.
According to the Bloomberg article, the spending habits of Generation Z are a cause for concern for some politicians and regulators, who are keeping an eye on their spending habits and the possibility that BNPL apps may victimise the youth who are not yet financially savvy.
“Young adults without sufficient financial awareness can have access to credit lines before they have the necessary earning capacity. This is an unhealthy trend,” Bloomberg quotes Ms Chan as saying in an email.
A person may create a BPNL account starting from the age of 18, and these accounts do not require the kind of background checks that credit cards do.
After consumers key in their data and link a valid debit card, they can shop online.
But woe unto them if they are unable to pay the instalments, as they face late charges between S$5 and S$60.
Alarmingly, Bloomberg says that 27 per cent of Singaporeans stated that items bought via BNPL have left them worse off, with 9 per cent saying they have had to pay late charges.
In April, a spokesperson for the Monetary Authority of Singapore (MAS) was quoted in The Straits Times warning consumers to be careful when using BNPL schemes and instalment plans.
“Consumers should also bear in mind that these are still debts to be repaid, with potential late fees and charges imposed if consumers miss repayments. Where consumers are not careful and overspend, such schemes can still result in overstretched finances and cause potential financial distress.”
MAS’ caution was given amidst the rising popularity of BNPL services, especially among young Southeast Asians, as these allow them to spread out payments over a number of months, usually without interest.
This makes even expensive items accessible, which partly explains BNPL’s popularity.
Bloomberg reports that the global market for such payment services is predicted to reach as much as S$44.5 billion in 2027. In comparison, the market was worth only S$9.7 billion in 2019.
Asians, unlike Westerners, have traditionally been debt-averse.
However, the majority of BNPL users in Singapore are 20 to 35 years old.
Bloomberg wrote that brands such as Zara and Sephora have joined the BNPL bandwagon
And with the pandemic driving online sales through the roof, purchasing items using instalment plans has become easier than ever.
“A lot of our users are obviously being impacted by the coronavirus – either they were furloughed or it’s just created more uncertainty for someone’s income or budget,” Bloomberg quotes Mr Ed Chin, the founder of local BNPL start-up OctiFi, as saying. “So a product like ours essentially creates more flexibility for them.”
But regulating BNPL apps is proving to be challenging, as these services are not within the purview of MAS, Senior Minister Tharman Shanmugaratnam, the chairman of MAS, told Parliament recently.
However, MAS is considering measures that would safeguard consumers better, but has repeatedly urged caution in using BNPL schemes.
“If not careful, one could chalk up debt across multiple instaLment plans and get into financial distress, especially for someone without a stable income.”
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