Buy Now Pay Later (BNPL) services, such as Atome, Grab PayLater and Hoolah, have been gaining popularity in Singapore. This has sparked government concern and MAS is in the midst of reviewing whether some form of regulation is necessary for BNPL. Currently, estimates placed the value of BNPL transactions in 2020 at around $114 million, a small fraction compared to the $92 billion in credit and debit card payments over the same period.
For the uninitiated, BNPL allows buyers to split their purchases across a number of instalments (usually 3 to 4 instalments). If that sounds familiar to you, you are probably thinking about the 0% interest instalment plans that credit cards already offer. So, what is really the difference between BNPL and credit cards?
#1 Minimum Requirements
Currently, BNPL services are unregulated as they fall outside of MAS’ regulations on credit which apply to banks and credit cards.
If you have ever wondered why credit card applications always require an income of at least $30,000, it is because of MAS regulation. Banks and finance companies can only issue credit cards to individuals below the age of 55 if they have an annual income of at least $30,000, total net personal assets of at least $2 million or total net financial assets of at least $1 million.
However, BNPL services don’t have this requirement. Instead, most of these providers set a minimum age of 18 years old and allow the payments to be made via credit or debit cards. This means that 18-year-olds who have access to a debit card (which is readily available with a bank account) would be able to use BNPL services.
One growing concern is the fact that the people, who would not meet the income requirements of a credit card, would be able to spend beyond their means by using BNPL services. Thankfully, this is not currently a huge issue as BNPL providers would typically suspend account use once a payment is overdue.
|Not MAS regulated||MAS regulated|
|No income requirement||At least $30,000 annual income|
#2 Minimum And Maximum Purchase Amount And Repayment Tenure
While you can use your credit card for any purchase that accepts a credit card payment (which is most merchants), BNPL providers work with participating merchants.
If you want to shop at Sephora using Hoolah, you are out of luck because Sephora only currently accepts Atome for BNPL services. However, you would be able to use your credit card for almost every transaction given the wide availability of credit card acceptance.
Credit card 0% instalment plans typically require a minimum purchase transaction amount before we can pay by instalment. For example, OCBC PayLite and UOB 0% Instalment Payment Plan both require a transaction amount of at least $100.
However, the minimum spending needed to use BNPL can be very low. For instance, Atome’s minimum spending for a single purchase is $10 while Grab Pay Later Instalment transactions don’t have a minimum spend.
For credit cards, the spending limit is capped at your credit limit. The regulatory credit limit for those with an annual income of $30,000 is up to 2 months’ income while those earning between $30,000 to $120,000 can have a limit of up to 4 months’ income. This can also be adjusted lower depending on your own personal preferences.
The maximum limit for BNPL is less clear-cut as most providers do not disclose what is the maximum spending or how it is determined. According to Hoolah, the spending limit “varies across each individual and it is determined by the system”. This limit is calculated dynamically and the more you use the service, the more likely you can spend more.
Finally, most BNPL providers split the payments across 3 months (with Grab PayLater offering 4 months). Credit card 0% instalment plans allow the flexibility of choosing a repayment tenure ranging from 3, 6 and 12 months (with some stretching to 24 months).
|As low as no minimum spend||Minimum spend of at least $100, typically, for 0% instalment plans|
|Undisclosed maximum spend||Maximum spend of up to 4 months’ income|
|Repayment tenure of 3 to 4 months||Repayment tenure of 3 to 12 months|
#3 Late Fees And Other Fees
The key thing to know about deferred payments is that everything is fine, until you are fined for late payments. The moment we fail to make payment is when things can go south quickly.
For credit cards, late payment and interest charges can be hefty. For example, OCBC charges a $100 late payment charge as well as interest of 26.88% p.a. on the transaction amount. UOB charges a $60 late payment charge and interest of 25.9% p.a. and DBS charges $100 late payment charge and interest of 26.8% p.a.
For BNPL, the late payment charges are less punitive, and no interest is imposed. For example, Hoolah charges $5 to $30 late payment charge depending on the order value. However, you are probably incurring late charges from both the BNPL provider as well as the credit card provider. So, it is a double whammy when you miss payments.
Credit cards may also impose a processing fee for converting your purchase to an instalment plan. For example, OCBC PayLite charges a 3% processing fee for all repayment periods, UOB 0% Instalment Payment Plan doesn’t charge a processing fee and DBS only charges a processing fee for repayment tenures exceeding 6 months.
|Lower late payment charges, usually between $5 to $30||Late payment charges of $100 typically and interest of around 26% p.a.|
|No processing fees||0 to 3% processing fees|
#4 Rewards And Offers
The availability of rewards and offers make BNPL an attractive option. Not only first-time BNPL users receive welcome offers, but existing users can also receive merchant specific offers.
On top of this, credit card users will continue to receive the cashback and rewards for BNPL repayment. If the same transaction is converted in credit card instalments, it typically does not qualify for cashback or rewards.
Additionally, the lack of processing fees can also make choosing BNPL more attractive as you will effectively pay nothing extra if you make your timely payments.
Timely Payment Is The Key
In the end, Buy Now Pay Later (BNPL) schemes are just another tool for the consumer, much like credit cards. Used wisely, they can open options and help us manage our cashflow more effectively. However, the challenge is ensuring that we make our repayments in a timely fashion and that the vulnerable among us are not induced to spend beyond their means.
The usage of credit cards can help us build our credit scores and set us up for our future mortgage loan applications but usage of BNPL services do not affect our credit scores. While it means that those who have poor credit scores can continue to spend with BNPL services, it does beg the question of whether it is the right thing to do, especially when most of the merchants partnering with BNPL providers are geared towards non-essential spending, such as fashion and retail brands.
Hopefully, these considerations will be included in MAS’ review of BNPL and we will see a sustainable use of deferred payment schemes as more Buy Now Pay Later providers enter the market.
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