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The Simple Truth Behind Buy Now, Pay Later (BNPL)

You may not like BNPL services but your kids may be perfectly fine using it.


Over the past year in Singapore, we may have encountered the term BNPL quite frequently. Whether it’s a merchant giving us an additional discount if we pay via BNPL, or an aggressive online ad served to us by one of the major BNPL players in Singapore, we may be curious about what exactly are the services that BNPL companies offer that make them so attractive to both consumers and merchants.

As the name suggests, BNPL allows consumers to buy now and to convert ‘payment’ into regular ‘payments’- hence, literally, allowing you to ‘buy now and to pay later’.

BNPL companies do not charge consumers (i.e. buyers) any interests or processing fees unless you miss a payment. In fact, given that most BNPL providers in Singapore are currently aggressively marketing their services to grab an early share of the market, you may even enjoy discounts or cashbacks if you choose to pay through BNPL over other regular payment methods like credit cards or cash.

If, like me, you are someone who grew up in the credit card era, you could be forgiven for wondering what’s the big deal about BNPL. After all, credit cards have been offering such 0% instalment plans for years, with many of us choosing to ignore these services to avoid being caught in a debt trap if we were to procrastinate payment.

Credit Card Focuses Largely On One Group Of Consumers

One key difference between BNPL and 0% credit card instalment plans is the target audience they are able to reach. For banks to offer these 0% instalment plans, it’s contingent on the ability (and willingness) of consumers to get a credit card first. If we don’t have a credit card, we can’t use this 0% credit card instalment plan.

For BNPL, however, the ability to buy now and pay later (like a credit card instalment plan) can be accessed without needing a credit card. In fact, the criteria to use BNPL services are much more relaxed in Singapore compared to getting a credit card. For example, while most credit cards require applicants to have a minimum annual income of $30,000, there is no income requirement for BNPL services. In fact, BNPL providers are not even regulated by MAS.

The ability to serve an “under-served” market is a gap that has been exploited by BNPL providers. Banks cannot offer their 0% instalment plans to subprime (i.e. higher risk) groups because these groups (students, lower-wage workers) cannot even get a credit card in the first place since they do not meet the income requirement.

BNPL Offers A Different Method Of Payment Compared To Credit Cards

As an avid credit card user, I tried asking myself if I’m guilty of double standards. After all, the use of BNPL service mirrors what credit cards provide – and that is the ability to purchase today and pay the bills in the future. One can even argue that BNPL provide a greater variation of payment solutions compared to traditional credit cards.

With BNPL, users can choose to spread out their payment over three months or different repayment tenure depending on the payment options offered by the providers. Some may even mirror closely how credit cards work. For example, Grab PayLater allows us to 1) pay in 4 monthly instalment or to 2) pay the next month (just like a regular credit card bill).

So the question is, why is it fine for me to be using credit cards, but that I become uncomfortable with the concept of BNPL?

To some extent, a lack of familiarity is part of the reason. Similar to how the older generation had doubts over whether credit cards are a boon or bane when it was first introduced – and till today, some may still prefer using cash as opposed to cards, we may also prefer credit card payments over BNPL due to our familiarity over one type of payment over the other.

If so, there is no reason to think that our kids, who are likely to have access to BNPL services before credit cards, would find BNPL more convenient than using credit cards in the future.

Payment habits and how they can contribute to (over)spending is an issue that cannot be overstated. Till today, there are still many people who write cheques for no real reasons beyond the fact that they are just more familiar with it.

The BNPL Concept Is Not New

While BNPL providers are relatively new in Singapore, the concept of buying now and paying later in equal instalment isn’t. Growing up, one example I can clearly remember is Court’s FlexiPlans.

Without going into the details on how their current FlexiPlans work, the whole idea behind why Courts provide these FlexiPlans is that it supports their business.

Firstly, consider that furniture are big-ticket items that are expensive. Assuming 0% interest, a bed can either cost $2,400, or $100 over 24 months, depending on how the merchant wants to market it and how you wish to pay for it.

Secondly, whether online or offline, many buyers typically go to a retail or an ecommerce shop with some form of purchase intent. And for most companies, capturing that foot traffic via advertising isn’t easy (or cheap), regardless of whether the person spends $10, $1,000 or $10,000 at your shop. This is why many shops love making suggestions on what else you should buy before right before you pay.

The problem is that while suggestions are great and attractive, they add to the final bill that consumers see and that isn’t attractive. Whether it’s ordering food via an app or shopping online on our laptop, we can all relate to the feeling of seeing the bill at the check-out tab, and then proceeding to remove some items from our shopping cart to make the bill more palatable.

That final bill we see is an excellent signal on what we can or can’t afford. If I order fast food on the Grab app today for my family of five and I see a total bill of $50, there is a great chance that I’m going to start removing some items from the list, or even change my mind to head out for takeaways at the coffeeshop instead. With BNPL, however, I may see 4 x payments of $12.50 instead.

Just like how it’s easier to afford that $5,000 full leather sofa set when you ‘only’ need to pay $208.33 a month (for 24 months), BNPL ‘helps’ make what is an otherwise expensive item somewhat affordable, never mind the fact that the price is the same.

The whole idea here is to increase the basket size of every customer, and thus increase revenue earned from each customer. For example, Affirm, a US-based BNPL provider, shares that it can help merchants increase their basket size by an average of 85%.

Using Simple Products To Capture The Mass Market

On their own, BNPL providers don’t provide any direct utility or happiness to customers. Nobody wakes up thinking they want to use a BNPL service today.

However, the way BNPL captures its target audience is simply through the vendors they worked with. And unlike credit card instalment plans or even loans that are usually targeted towards buyers with big-ticket purchases, BNPL payment solutions are a lot more simple – targeting small items that you may already be regularly purchasing (food, cosmetic and clothes) with the intent to increase basket size.

BNPL providers position themselves at the appropriate place they should be – the check-out counters. Their one job – simple – to make that $50 McDonald’s order ‘cheaper.’

The question today isn’t so much about whether buying now and paying later will be the norm for the future. The use of credit cards has already established that people are perfectly fine with paying later. Rather, it’s whether we will transit to a society where it becomes the societal norm to buy something today, and to spread out payment over a 3 to 6 months period.

Read Also: Buy Now Pay Later (BNPL) VS Credit Card: What’s The Difference When Buying Using These Two Methods

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