More safeguards needed for ‘buy now, pay later’ scheme to protect younger consumers: Experts

For now, the number of younger consumers using BNPL payment options remain in the minority. ST PHOTO: KELVIN CHNG

SINGAPORE – A code of conduct for buy now, pay later (BNPL) players in Singapore was formalised on Tuesday with measures to guard against consumer overspending.

But questions have been raised about whether more can be done to protect younger consumers.

While the minimum age is 18, associate professor of information systems Jan Ondrus of Essec Business School Asia-Pacific said there should probably be tighter regulations for those aged 18 to 21.

This will ensure that not every one can sign up once he or she reaches 18, as many do not have an income yet.

“By being able to buy something because they do not have to pay today (but) can pay later, a lot of young people might not be aware of the risks that go with BNPL,” Prof Ondrus said.

Communications manager Kelly Chiew, 29, said BNPL can be a very dangerous tool for young teenagers who are not as financially aware or do not have financial discipline.

She uses BNPL apps Pace and Atome for purchases above $1,000 like a spa treatment or an electric desk, but is careful not to overspend.

Former BNPL user Jorge Sng, 23, said even 16-year-olds can access BNPL schemes easily using their parents’ identification details. 

He said BNPL platforms could require users to take a picture of themselves holding their identity cards, which clearly show their date of birth, to sign up for an account.

For now, younger consumers using BNPL payment options remain in the minority.

In a parliamentary reply in April, the Government stated that more than 85 per cent of BNPL users in Singapore are 25 or older, and they account for over 90 per cent of total BNPL transaction values.

Observers also voiced concerns about the spending limit of $2,000, saying a borrower can owe $2,000 to each BNPL player and end up accumulating large debts with multiple companies.

Ms Elaine Koh, senior director for South & South-east Asia non-bank financial institutions at Fitch Ratings, said: “The accumulated balances could end up being quite significant relative to, say, your median monthly income which is about $4,500 to $5,000 in Singapore.”

This concern should be addressed by a credit-sharing bureau which will share users’ credit information – such as outstanding BNPL balances, missed payments, delinquencies and other personal information.

Consumer credit reporting company Experian, which launched the world’s first BNPL bureau in January, will run this credit bureau in Singapore.

As the code of conduct is industry-led and evolving, more fine-tuning could be made along the way.

Ms Koh said it specifies only that BNPL providers will collect some simple identity information, but there is no mention of a need for credit checks before a user can transact on a platform.

Under the current code, an additional credit assessment is done only when a borrower exceeds the $2,000 spending limit.

Ms Koh said this is unlike in Australia, where there is an initial assessment when BNPL providers have to determine if the repayment terms are suitable for the borrower, whether he can pay the instalments and his mental capacity.

She added that there is a need for an independent committee to oversee the actions of the BNPL players and ensure they are complying with the code. 

“Who is policing that? Does the audit process stretch to the extent of enforcement and revoking membership?” said Ms Koh.

The BNPL code of conduct is developed by the Singapore FinTech Association and eight industry players, including Atome, Grab Financial Group and ShopBack, under the guidance of the Monetary Authority of Singapore (MAS).

Unlike financial institutions which are regulated by MAS, the authority is taking a lighter approach and letting the BNPL industry set its own standards and safeguards.

MAS has said it will continue to monitor developments in the sector and work with the industry to address any risks to consumers.

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