KUALA LUMPUR: Today, BNPL (Buy Now, Pay Later) services are a dime a dozen online and are rapidly gaining ground among consumers – especially the younger segment – as a variety of mobile applications for this purpose are readily available for download.
As the slogan “buy now, pay later” implies, consumers can buy goods and services without paying anything first. The procedure for this is very easy – only ID card and face recognition are required for registration and 10 minutes later you can start shopping.
Be careful, though, because nothing of value comes easy. According to experts, these BNPL schemes run the risk of buyers falling into debt traps.
The business analyst at Putra Business School, Associate Prof. Dr. Ahmed Razman Abdul Latiff, said: “I find this BNPL worrying because it is not (currently) regulated by Bank Negara Malaysia (BNM), making it easy for people to get into debt, especially those who have no idea about financial management .”
He told Bernama what makes BNPL attractive is that there is no limit to how much a person can spend and their credit score is not affected even if they default on payments.
“Even if a buyer has outstanding debt with one BNPL provider, they are free to accumulate debt with other BNPL providers as there is no record (of their outstanding payments). This puts them at risk of falling into a debt trap,” he warned.
There are statistics to show that this scientist’s warning is not unfounded. According to media reports, the transaction value of the BNPL market, which involved 10 non-bank BNPL providers, rose to RM1.49 billion in 2021, compared to just RM55 million in the previous year.
A FORM OF PERSONAL LOAN
To find out if shopping through the BNPL platform is as easy as it looks, this author decided to try it himself. In fact, making transactions was not only a breeze but also exciting, which came with all the discounts and promotions for buyers.
The selling point was so enticing that even this author became addicted and the best part was that the payment could be made in installments. He bought a tablet keyboard for RM299 and received a discount of RM25, and his monthly payments were RM68.50 for four months.
Ahmed Razman viewed this transaction strategy as a kind of personal loan.
“The merchants see this (BNPL) as a way to make it easier for people to buy things since not all of them (customers) have a credit card.
“So merchants started using the BNPL (strategy), which means buyers have the opportunity to buy on credit with BNPL even without having a credit card,” he said.
A review by Bernama revealed that most BNPL providers claim their transactions are interest-free. But is that true?
Based on Bernama’s observations of 10 BNPL providers, eight of them are known to have “hidden interest charges” imposed on customers who fail to make their payments on time.
This was also confirmed by the financial expert Dr. Adam Zubir via his YouTube account. He said BNPL is a business concept that makes profit by charging processing fees and late payment fees.
Asked whether BNPL can plunge a person into bankruptcy, Ahmed Razman said that not monitoring their financial status could potentially lead a person in that direction.
“BNPL itself will not let a person go bankrupt, but the risk of them moving in that direction is when their (overall) debt obligations increase and they are unable to pay their monthly car and home loans and credit card bills settle
“Initially, a person’s debt obligations to banks may be small, but it becomes problematic when they overspend and start piling up their debt through BNPL. That’s the problem the young generation is facing now,” he said.
In June, Prime Minister Datuk Seri Ismail Sabri Yaakob expressed concern about the rising number of youth bankruptcies.
Data from the Malaysian Insolvency Ministry showed that nearly 60 percent (about 22,000) of the 46,132 Malaysians involved in bankruptcy cases from 2018 to May this year were between the ages of 25 and 44, with 19,334 of them citing personal loans as the reason for bankruptcy.
LOW FINANCIAL EDUCATION
One of the reasons young people fall into the debt trap is their low financial literacy, a fact supported by a report by the Organization for Economic Co-operation and Development (OECD) that says only 33 percent of Malaysians are financially literate.
“How many people plan their expenses based on monthly income? As long as we don’t monitor our personal finances, we would (voluntarily) spend money, including using BNPL,” Ahmed Razman commented.
He also warned that BNPL could exacerbate Malaysia’s household debt problem. The country’s household debt-to-Gross Domestic Product (GDP) ratio stood at 89 percent as of December 2021, the highest in Southeast Asia and the second highest in Asia after South Korea.
“Malaysia’s household debt increased from RM1.27 trillion to RM1.34 trillion; indirectly, the nation’s household debt is higher than the federal government’s debt.
“This problem (BNPL) is very dangerous as it can aggravate the debt situation for a person who is already tied to car and home loans, credit card payments and personal loans,” he added.
Ahmed Razman urged BNPL operators to clearly explain the nature of transactions so their customers are aware of the risks they would have to face.
“In fact, I wish they (operators) would show a warning before the customer clicks the ‘Agree’ button to use the BNPL system,” he said.
Meanwhile, the BNM’s Credit Counseling and Debt Management Agency (AKPK) said a survey of participants in its counseling program found their high debt was due to the cost of living (37 percent) and poor financial planning (36 percent).
In a statement to Bernama, AKPK said the debt problem was made worse by attitudes from consumers who were living beyond their means so they could follow the latest trends and get what they wanted.Bernama