KRI Webinar - Redefining Credit: The Rise of Buy Now, Pay Later (BNPL) in the Consumer Credit System

On 13 June 2024, KRI hosted a webinar discussing findings from the recently published report, ‘The Financialization of our Lives: Values and Trade-offs’. The webinar focused on Chapter 2 of the report, “Redefining Credit: The Rise of Buy Now, Pay Later (BNPL) in the Consumer Credit System”, which delves into the market push for consumerism through the use of BNPL amidst the backdrop of households’ wage stagnation.

The webinar examined the emergence of BNPL as an innovative payment method and an instrument for enhanced financial inclusion, especially among demographics that previously had limited access to traditional credit lines. By providing a simplified and often instantaneous credit approval process, BNPL may have expanded the reach of credit to younger generations, those without a credit history, as well as individuals who fall within the lower-income bracket. While this has democratised credit access, it has also raised concerns about responsible lending practices and the potential risks associated with over-extension of credit to less financially literate populations. On a macroeconomic level, this can lead to rising household debt that poses systemic risks to the financial system.

The webinar included a panel discussion consisting of the author of the chapter, Shereen Hazirah Hishamudin, and external stakeholders, Datin Azryta Abdul Aziz from the Consumer Credit Oversight Board (CCOB) Task Force, Professor Mohd Nazari Ismail from Universiti Malaya (UM), and Alain Yee from ShopeePay and SeaMoney Malaysia. The panellists reviewed the rising usage of BNPL in Malaysia and its associated risks to consumers and the overall economy.

Growth in BNPL raises concerns

Driven by the advent of the financialization of the economy and consequently, our everyday lives, the webinar delved into the rising usage of BNPL in Malaysia over recent years against the backdrop of households’ wage stagnation. The panellist highlighted three economic implications of rising BNPL usage; (1) rising household debt, particularly due to the over-extension of credit, (2) changes in the credit market, and (3) influence on savings rate.

Cultural features contribute to growth in BNPL

Panellists also examined the cultural features that contribute to rising BNPL usage, which include the cultural emphasis on instant gratification as BNPL offers a frictionless shopping experience that allow consumers to acquire products instantly. In addition, the rise of BNPL can also be seen as a manifestation of consumerism, where the acquisition of goods is closely tied to personal identity and social status. In societies where material possessions are viewed as symbols of success, BNPL can facilitate the pursuit of a lifestyle that might otherwise be out of reach.

Proactive measures are critical to address rising risks from BNPL use

While growth in BNPL currently remain within reasonable boundries, proactive measures are critical to address rising risks. In particular, seven policy options were proposed by the panellist; (1) integration of BNPL into household debt metrics, (2) regulatory oversight, (3) consumer education and awareness, (4) credit assessment and responsible lending practices, (5) enhanced disclosure requirements, (6) grievance mechanism and consumer protection, (7) cross-border regulatory collaboration.

In addition, a key regulatory measure discussed by panellists were the enactment of the Consumer Credit Act (CCA), spearheaded by the CCOB Task Force that aims to promote a fair, efficient, and transparent credit industry by ensuring proper conduct and responsible lending practices among credit providers, including providers of BNPL.

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