PETALING JAYA: The buy-now-pay-later (BNPL) scheme that gives consumers easy access to cash for new purchases can also turn into a quick tumble into financial trouble, a consumer group and a financial analyst have warned.
The Federation of Malaysian Consumers Associations (Fomca) senior manager, Baskaran Sithamparam, said it would only pile up the debts many Malaysians are already faced with.
Meanwhile, financial planner Lee Miew Kuan pointed out that while BNPL could be a valuable financial tool for those who need to make essential purchases, it could raise debts to an unmanageable level for many users.
Baskaran and Lee were airing their views on the more recent entry of new players in the BNPL market and its rising popularity among consumers.
BNPL is a type of short-term financing scheme that enables a consumer to buy an item and pay for it at a future date. Generally, it is structured as an instalment plan or a money-lending facility involving the consumer, a financier and the merchants from whom the purchases are made.
According to businesswire.com, the website that disseminates press releases from thousands of businesses, Malaysian consumers began to shift their consumption behaviour online after going through various Covid-19 pandemic-related restrictions in 2020 and 2021.
The BNPL facility is available for most, if not all, online purchases.
Baskaran told FMT Business BNPL puts consumers in debt in the long run. “BNPL makes purchasing easy, especially for youngsters, who are not able to come up with cash immediately,” he pointed out.
“But if they fail to pay back, the service provider will impose a penalty. In the long run they will be in debt,” he said.
“They will also end up in the credit reporting agency CTOS black list, making it very difficult for them to get loans later on,” he added.
Baskaran pointed out that the BNPL is more of a detriment than a beneficial scheme.
“The interest rate is higher than that for a credit card. It is only good for those who are financially stable,” he said.
Lee pointed out that most BNPL plans are for discretionary purchases rather than essentials.
“For many, the BNPL debts would only accumulate, as they would for credit card debts,” she told FMT Business. “This has led many into a difficult financial position.”
“Malaysians should not subscribe to the ‘enjoy now pay later’ mentality. Instead, they should work to grow their wealth to enjoy a debt-free life later,” she added.
Nonetheless, she said, the BNPL could be useful for those desperately in need. “It can help to ease cash flow problems in the short-term, to help individuals purchase daily necessities,” she said.
She said it could also be useful for small enterprises that need to make purchases to enable business continuity. “As it is for consumers, they should not be continually dependent on it,” she added.
A spokesman for Bank Negara Malaysia (BNM) told FMT Business that only BNPLs offered by banks are regulated.
However, he said, all consumer credit products, including the BNPL, are regulated by the consumer credit oversight board (CCOB) task force.
The CCOB task force, comprising representatives from the ministry of finance, BNM and Securities Commission, was set up in July 2021 to ensure compliance with the Consumer Credit Act.
The effort is undertaken in close collaboration with the ministries of domestic trade and consumer affairs, housing and local government and entrepreneur development and cooperative as well as the Malaysia cooperative societies commission.
The adoption rate of BNPL in Malaysia is expected to record a compound annual growth rate of 35.4% from 2022 to 2028, while the gross merchandise value will rise from US$625.3 million (RM2.66 billion) in 2021 to reach US$6.89 billion (RM29.4 billion) by 2028.
This has drawn many new players into the BNPL space.
Source: https://www.freemalaysiatoday.com/category/highlight/2023/02/02/beware-the-risk-of-buying-now-only-to-pay-later-consumers-warned/