Growing Popularity of "Buy Now Pay Later" Schemes and Plans to Regulate Firms Offering such Schemes

19 Mr Desmond Choo asked the Prime Minister as "Buy Now Pay Later" (BNPL) schemes have rapidly gained traction in the past year (a) what is the total value of BNPL transactions in Singapore in 2021; (b) whether there are plans for BNPL companies and schemes to be regulated; and (c) whether BNPL schemes have disproportionately affected younger consumers in being over-leveraged.

The Minister of State (Mr Alvin Tan) (for the Prime Minister): Mr Speaker, “Buy Now Pay Later”, or BNPL, transactions have constituted a very small fraction of total consumer payments to date. Last year, BNPL transactions amounted to around $440 million, which is less than 0.5% of the $103 billion in credit and debit card payments.

BNPL schemes offered in Singapore, currently, do not pose significant risks of consumer indebtedness. Some common features of BNPL schemes limit the extent of debt accumulation by consumers. For example, BNPL providers typically suspend users from making further BNPL purchases once a payment is overdue. BNPL schemes also do not charge compounding interest on the outstanding amount and cap the amount of late fees levied. The risk of rapid debt accumulation by consumers through BNPL schemes is, hence, not large.

All BNPL providers in Singapore have also set a minimum account opening age requirement of at least 18. In fact, those who are 25 years or older account for more than 85% of BNPL users here and more than 90% of total BNPL transaction values.

MAS is, nonetheless, closely monitoring the BNPL sector as such borrowings have the potential to grow rapidly. We are studying the experience of other countries where BNPL schemes have taken off more strongly.

For now, MAS has assessed that effective industry self-regulation, through an industry code, should adequately mitigate the risks in the BNPL sector. Under MAS’ guidance, the Singapore FinTech Association has launched a BNPL Working Group to develop a code of conduct for all BNPL providers.

This code, which we expect will be launched in the second half of this year, will seek to mitigate the risk of consumer over-indebtedness and establish minimum safeguards to ensure that consumer interests are well-protected while using BNPL schemes. MAS will continue to guide the progress of the BNPL Working Group and monitor developments in this space.

Mr Speaker: Mr Desmond Choo.

Mr Desmond Choo (Tampines): Mr Speaker, I have two supplementary questions for the Minister of State. BNPLs are, essentially, unsecured loans. The consumer can purchase across multiple shopping sites and use multiple BNPL facilities provided by different providers. Should there not be a limit to how much a person can utilise such facilities?

BNPL also has the propensity to encourage spending beyond one's means, especially because BNPL payments are charged to a buyer's credit card so there is double leverage. Can MAS consider making credit worthiness checks on BNPL, similar to what it has been doing for credit cards?

Mr Alvin Tan: I thank the Member for his supplementary questions. MAS agrees with the risks highlighted by the Member. As I had mentioned earlier in my response, the BNPL's code of conduct will seek to enshrine unique features of BNPLs which exist today to limit the extent of debt accumulation by users.

In addition, we also expect the code of conduct to incorporate minimum safeguards for BNPL providers to limit financial imprudence amongst individuals and also to mitigate risks of consumer over-indebtedness.

MAS is monitoring the progress of the BNPL code and will continue to guide its development, especially in areas where MAS has baseline expectations that need to be met within the code.

At this point of time, I want to quickly just share on what consumers may do while we are still working with the SFA on this code.

As with undertaking any financing of any form, consumers should first consider and prioritise their needs over wants when deciding to make a purchase. BNPL schemes and instalment plans should not be used as a way to buy items that are more expensive than what consumers can afford and do not need. By over-stretching finances this way, consumers compromise on their financial goals.

Consumers should read and understand the terms of any financing schemes, including BNPL schemes, which are fast gaining popularity, before signing up for any of these schemes. In particular, they should be aware of any fees and charges, such as late fees, which are imposed on missed or partial payments. Consumers need to be sure they are able to make payments fully and promptly and factor in whether they can bear the consequences of failing to do so.

Mr Speaker: Mr Melvin Yong.

Mr Melvin Yong Yik Chye (Radin Mas): I thank the Minister of State for his reply. I have one supplementary question. The Consumers Association of Singapore is concerned with the risk posed by the BNPL scheme, especially when the consumer is unable to service the payment instalments.

So, while I can understand that the Government needs time to study the evolving BNPL landscape and consider its regulatory approach, I would like to ask will MAS consider including advertising curbs in the proposed code that it is studying right now, similar to that which is imposed on cryptocurrency. This is so as to prevent BNPL schemes from preying on impressionable youths.

Mr Alvin Tan: I thank the Member for his question. I think it is a very important point. And I also encourage the Member and CASE also to work together with the Singapore FinTech Association and the Working Group to explore some of the suggestions that he has made.