Why the time is ripe for ‘buy now, pay later’ in Asia

“Buy now, pay later” (BNPL), the once obscure – one might even say superfluous – trend in well-carded Singapore, is getting legs. These days, millennial and Gen Z consumers want it all – the instant gratification of a purchase and the ease of installment payments, without the unpredictability of credit card debt. BNPL companies allow them to have their cake and eat it too.

BNPL, the unintended beneficiary of a pandemic that has accelerated digital payments and seen ecommerce surge, has grown unfettered in the past year. Globally, the model is expected to be the fastest-growing mode of online payment over the next five years, according to a Worldpay report.

For a long time, there was little need for another mode of payment that did what credit and debit cards, if not e-wallets, already achieved – enabling easy, convenient, and trackable spending, with bonus loyalty points or cashbacks thrown in.

BNPL promises all of the above but without the risks of hefty fines on a missed payment, plus the benefit of deferring payments with no extra charges. In an economic crisis, these added perks have made all the difference, and the response has been resounding.

The trend has piqued the interest of Chinese tech giants and even Singapore’s sovereign wealth fund GIC.

“People like to talk about digitizing businesses, [but] not a lot of merchants are interested in accepting digital payments, especially the offline people we work with. But when you say, ‘We can help you grow your sales, get more customers, and get them to come back to you,’ that’s a very different value proposition and is what BNPL can offer that digital payments can’t,” says Ed Chin, founder and CEO of Singapore-based BNPL player OctiFi.

It’s fast and free

The BNPL trend is often marketed as the antithesis of credit cards, with proponents touting that it is more transparent on pricing.

Generally, this is how the scheme works:

• A consumer pays a third or fourth of the full transaction price upfront.
• The remaining amount is split into two or three equal installments, subsequently repaid monthly or biweekly.
• Payments that are made on time are interest-free.
• BNPL firms then pay the merchant in full and in doing so, absorbs a consumer’s credit risks – the chance where outstanding payments aren’t repaid or recoverable.

A sweet spot where splitting up payments starts to make sense is in amounts upward of US$100. Rely, another Singapore-based BNPL firm, says its average transaction size ranges between US$150 to US$187, while competitor Atome‘s figures are slightly lower, at around US$75 to US$150.

Compared to Europe, where companies like Klarna have been operating for over a decade, the trend is still relatively nascent in Singapore. Four players occupy the space in the city-state: Rely, Hoolah, OctiFi, and Atome.

One commonality though, is their target market: millennials and Gen Z. These segments are digitally savvy, seeking a fast, intuitive, and mobile-first shopping experience. Half of Australian BNPL company Afterpay’s 11.2 million global users, for instance, are millennials.

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