The BNPL basics
BNPL providers typically partner with retailers to offer their services at checkout. When a customer opts to use BNPL at checkout, they are given the option to pay for their purchase over time in installments. The number of installments and the repayment schedule will vary depending on the provider and the retailer. For example, let's say you purchase a new TV for $1,000 using BNPL. The store may offer you the option to pay for the TV over 24 months with monthly payments of $50. Alternatively, they may offer you the option to pay for the TV over 12 months with monthly payments of $100. The big advantage of using BNPL is that it allows customers to purchase items that they may not be able to afford upfront. It also offers customers more flexibility when it comes to repaying their debt. There is no common model for BNPL providers in Asia, but they tend to use a combination of the above. However, one commonality across all of the models is the fact that the merchant typically pays more for BNPL than they would for a simple credit card transaction, the argument here being that BNPL increases the velocity of transactions with previously indecisive consumers now leveraging BNPL to buy whatever they were previously hesitant on.
Why is BNPL so popular in Asia?
There are several reasons why BNPL has become so popular in Asia. First and foremost, Asian consumers are increasingly comfortable with using credit products. In China specifically, credit card usage has quadrupled over the past decade as more people have become comfortable with borrowing money to make purchases. This trend is being driven by younger shoppers who are more open to using credit products than their older counterparts.
In addition, the internet and mobile commerce have made it easier than ever for people to shop online and make purchases using their mobile phones. As a result, people in Asia are making more purchases online than ever before – and many of those purchases are being made using BNPL products.
Another reason why BNPL has taken off in Asia is because there are very few regulations surrounding these products. This lack of regulation has allowed providers to design creative products that meet the needs of consumers. For example, some providers offer installment plans that allow customers to make interest-free payments for periods of up to 12 months. Others allow customers to make partial payments or even defer payments entirely for certain periods of time. These types of flexible repayment options are very attractive to consumers who are looking for ways to finance big-ticket purchases without incurring too much debt. Each of these models is also regulated differently in Asia, which allows for a certain amount of regulatory arbitrage.
The future of BNPL in Asia
BNPL offers several advantages for both consumers and merchants alike. For consumers, it provides a way to finance big-ticket purchases without incurring too much debt. For merchants, it helps increase sales by offering customers an easy way to pay for their purchases over time.
However, there are also some potential risks associated with these products – namely, that customers may end up accruing large amounts of debt if they're not careful about how they use them. These issues are starting to be reflected in the stock prices of some of the large Asian BNPL providers that are starting to see large losses.
The other variable is regulation. Countries are definitely moving forward with regulation around BNPL including Malaysia and Australia, while others, like Singapore, are suggesting guidelines. Although none of these completely ban BNPL, they will limit how quickly these previously high-flying platforms are able to grow in the future.