Private credit fuels ‘buy now, pay later’ lending boom in Asia

Hong Kong – Ms Maria Hazel Regalado, a 48-year-old mother of four in the Philippines, needed a computer in 2024 so she could work from home. Ms Regalado did not have the cash or a credit card. A friend suggested she get a “buy now, pay later” (BNPL) loan from Billease, an online lender.

The computer cost 37,999 Philippine pesos (S$852), almost as much as she earns in a month. Still, Billease approved her application within minutes. She agreed to make 12 monthly payments of 4,493 pesos each, including principal and interest. The effective annual rate: 42 per cent.

“At first, I was hesitant, but I didn’t have much choice,” said Ms Regalado. “I really needed that laptop.”

Globally, BNPL loans in 2024 soared five times in value to US$334 billion (S$428.5 billion) from five years ago, according to technology analysis and consulting firm Juniper Research.

In the United States, merchants typically pay any fees, so customers get no-interest loans as long as they keep current. But the developing world has a different model: charging eye-­popping interest rates to cash-strapped borrowers.

While Indonesia, Malaysia and Thailand have been tightening regulation and warning consumers about the cost and risk of BNPL loans, companies such as Manila-based First Digital Finance, which operates as Billease, say they are opening up consumer finance in underserved markets.

These lenders, which make loans outside both traditional banking and the world of publicly traded bonds, initially catered primarily to small and medium-sized companies but have been expanding into consumer finance.

Billease has tapped private debt investors, including UK-based Lendable, which has raised money from Shell’s charitable foundation; development banks; and investment firms catering to wealthy families.

So have two of its biggest competitors, both based in Singapore: Kredivo Group has borrowed from money manager Janus Henderson Group’s Victory Park Capital Advisors; and Apaylater Financials, which does business as Atome, has looked to the growing private credit operations of BlackRock the world’s largest money manager.

The private credit companies typically lend out money to South-east Asian BNPL outfits at annual rates of 10 per cent to 15 per cent, making the deals attractive to the companies’ investors.

In Jakarta, ads for the BNPL companies are almost inescapable both online and on billboards, city buses and commuter trains. One for Kredivo encourages customers to use BNPL loans for smaller daily purchases, even for train fares and items at convenience stores. “It’s that flexible!” the tagline reads.

Dr Huy Pham, a senior finance lecturer at the Royal Melbourne Institute of Technology Vietnam who specialises in financial technology, said BNPL loans can lead to splurges from consumers with unstable incomes, exposing both them and their lenders to growing risks.

“At the end of the day, if customers are not able to pay back the loans, then the platforms will be in trouble,” he said.

Indonesia’s BNPL-related debt in May reached almost US$1.9 billion, up 40 per cent from a year earlier. According to the country’s Financial Services Authority, 3.74 per cent was ­non-performing – meaning borrowers were more than 90 days behind on their ­payments – up from 3.22 per cent a year earlier.

BNPL lenders say they obey debt collection rules and the rates they charge reflect the risks of the population they are serving. They say they do not purport to be compliant with Muslim law and most banks in the country also collect interest on loans.

Atome chief commercial officer Andy Tan said his company must contend with customers who disappear and erase their online presence, among other kinds of fraud.

“Credit risk is something we monitor day in and day out,” he said.

But if customers can keep paying back their loans, the profit for lenders like Billease will be enormous. The company typically charges 3.5 per cent a month on its loans, but it also turns the money it lends over many times a year. The estimated expected annual return on this cash: 90 per cent. BLOOMBERG