Buy Now Pay Later (BNPL) schemes have grown rapidly in Malaysia, often severely impacting consumers negatively. According to the Consumer Credit Oversight Board (CCOB) website, there are about 2.9 million active BNPL users. From January to September 2023, there were altogether about 52 million transactions worth RM 4.3 billion. The volume of transactions grew at an average of 21% every quarter.
The negative impact on consumers is worrisome. As at the end of September 2023, overdue payments for BNPL was 4% with 1.3 % missing out on payments for more than 3 months. The balance not paid for BNPL transactions was RM 0.9 billion.
The relative ease of BNPL, that is without credit assessment of the buyer, and the relatively “low” monthly payments often may give buyers a false sense of purchasing power causing them to spend more than they can truly afford resulting often being caught in a debt trap.
The Ministry of Finance is currently developing the Consumer Credit Act. FOMCA fully supports the CCA which aims to protect the interests of credit consumers by regulating the credit services ensuring responsible lending practices by BNPL companies as well as promoting a fair, efficient and transparent credit industry.
In many other jurisdictions, due to the severe negative impact on consumers, governments are seeking to regulate the industry to protect consumers. The early actions by Bank Negara Malaysia should certainly be lauded for its pro-active actions to protect Malaysian consumers in the BNPL space. Consumers International has also called for greater regulation of BNPL schemes at the global level.
While the regulatory framework to regulate credit is indeed crucial and fundamental to protect consumers, one should also be aware of the market economy that promotes consumption through aggressive marketing strategies. And these marketing strategies begin targeting consumers even at the children stage. Children are vulnerable and often are more susceptible to these marketing strategies. The habits, preferences and desires formed at an early stage often becomes ingrained in adult life. Thus marketing to children should be regulated and limited to ensure children form healthy consumption habits.
Further youths and adults being exposed to aggressive marketing strategies and having low financial literacy, coupled with an often too easy access to credit as in the BNPL schemes, easily become victims to these schemes resulting in severe financial problems and even leading to bankruptcy.
Too often the victims of BNPL are youths as well as consumers from the low income community.
It has been reported that of the 2.9 million. BNPL users, 47% were between the ages of 31 to 45. Also, in the Financial Stability Review for the second half of 2022, BNM reported that more than 80% of BNPL users earn less than RM 3,000 per month and was therefore more susceptible to financial stress. The central bank indicated that the relatively easy access to BNPL may place users at higher risk of spending beyond their means without considering their ability to promptly pay their scheduled amount.
Thus financial empowerment programmes are crucial. And financial literacy must begin at a young age in school to form the right values and habits to ensure financial well-being in the current market environment.
Further some form of assessment of the consumer’s credit worthiness is crucial to ensure if he can truly fulfil his financial obligations. While easy credit can result in over-spending the seller carries some responsibility to ensure consumers have the capacity to fulfil their credit obligations before credit is extended to them. Credit assessment may not be a popular move for consumers, but considering the severe negative impact of BNPL on consumers not only in Malaysia but also all over the global, this step to assess consumer capacity to fulfil credit obligations, is being considered by regulators in many jurisdictions to ensure consumers do not fall into severe debt issues.
In regulating the industry, all charges should be made clear and transparent especially “late charges”, “administrative charges” and any other charges. Equally important the consequences of late or non-payment must be clear to consumers at the time of purchase. The easy access to BNPL services is already having a serious negative impact on consumers. FOMCA fully supports the Consumer Credit Act. However, financial empowerment must also be given priority. Consumers need to be empowered with the right knowledge, skills, values and attitudes to adopt the proper behaviour to minimize personal financial risks as well as build towards greater financial well-
