Micro-loans are all the rage because Gen Z thinks ‘buy now, pay later’ is cool, Money News


For Marcus Khoo, perfumes and oil diffusers have never been at the top of his shopping list. They would have been inactive in his online shopping cart, had it not been for a hire purchase installment payment option that tipped the scales in his decision.

Using a service called Rely, Khoo split his S $ 56 (US $ 41) purchase bill into four bi-monthly, interest-free installments. The Singapore-based start-up, founded in 2016, connects to dozens of stores that sell fashion, accessories and electronics, including shoe brand Geox and clothing brand Charles & Keith.

“I like it because you pay less for the article up front and there is no interest, unlike a credit card,” said Khoo, a 26-year-old social media manager. who used the option three times this year. “You always pay the full price, except that it’s spread over different time periods. The pain of your money leaving your wallet is delayed, compared to one-shot repayment.

Rely is one of dozens of credit vendors – known by their Gen Z acronyms BNPL for “buy now, pay later” – growing across Asia, poised to double their share of the payments market. -region trade from 0.6% to 1.3%, according to a forecast in the FIS-Worldpay Global Payments 2021 report.

It is the fastest growing online payment method in countries like Australia, Japan, Malaysia and Singapore, according to the report, to the detriment of credit cards, bank transfers, checkout. delivery and prepaid cards, all of which will lose shares by 2024..

Chinese online shoppers have long been used to what are also known as microloans, small amounts of credit powered by artificial intelligence (AI) and big data analytics. Ant Group, a subsidiary of that newspaper’s owner, Alibaba Group Holding, has been operating its Huabei service since 2014 – while rival JD.com launched Baitiao the same year.

“The buy-it-now and late-pay industry in China has grown rapidly in recent years, although people generally regard it as online microcredit,” said Han Feng, McKinsey partner in Shanghai. “But it’s an area that is being regulated now, so the industry has gone through dramatic changes and growth has slowed down.”

What are the dominant electronic payment methods in the Asia-Pacific region?

2020 (percentage) 2024 (percentage)
Digital / mobile wallet 60.2 65.4
Credit card 19.1 18.1
payment 6.5 4.1
Debit card 5.8 7.1
Cash on delivery 4.1 2.0
Prepaid card 1.1 0.4
Post-payment 1.0 0.5
Debit and deferred debit card 0.8 0.4
Buy now, pay later 0.6 1.3
Debit 0.3 0.3
Other 0.3 0.3
Prepay 0.2 0.1

Chinese internet regulators have focused more on online microcredit since the introduction of draft rules last November to redefine fintech development, forcing lenders to invest more of their own capital to grant loans. new loans.

Ant Group’s double listing of US $ 39 billion in Shanghai and Hong Kong was canceled amid regulatory crackdown, which has prompted all e-commerce and fintech platforms to change their data management rules and confidentiality.


Certainly, China’s online microcredit products differ from the BNPL services seen in the West. Huabei, which means “just spend it,” works more like a virtual credit card that offers borrowers up to 40 days of interest-free loans.

Most BNPL plans derive their income from increased spending at merchants, letting buyers take advantage of their interest-free credit.

Some of these services, like LexinFintech’s Maiya and Happay, offer interest-free BNPL loans. Hong Kong, Singapore and the rest of Asia are also getting closer to BNPL.

“The trend of online microcredit has slowed in China, but for some Southeast Asian markets there is still a good chance of growth, especially for Thailand and India. [where there is] a lack of credit cards, ”Han said. “This region is now like the first stage of the Chinese market.”

Chinese fintech companies have also invested money in Southeast Asia, Han said. Ant Group owns 6.3% of Paytm in India and 39% of Kakao Pay in South Korea, both with BNPL services.

Tencent Holdings, which has its own credit product called Fenfu through its ubiquitous social media network WeChat, has invested in 3% of Southeast Asian tech giant Sea. Its e-commerce platform ventured into BNPL’s offerings in the Philippines, Thailand and Indonesia.

BNPL loans are highly regarded in Asia as they satisfy both consumers and merchants. Buyers are drawn to the payments niche as it stretches their dollar, while merchants welcome a higher volume of sales.

“Despite the strong adoption of digital payments around the world, what consumers lacked was paying over multiple time frames,” said Warren Hayashi, Asia-Pacific president of Dutch payment processor Adyen, which manages online payments. and in-store via a single platform for merchants. .

“Sometimes you see installment payments for more expensive items. These are legacy solutions owned by banks; consumers have little choice of how to pay over a period of time.


BNPL’s services received a boost during the global Covid-19 pandemic, as social distancing rules funneled the use of cash into contactless online payments, while job shifts increased the need for short-term credit.

Millennials and Generation Z – those born between the late 1990s and early 2010s – are the biggest users of BNPL services, said Arvin Singh, co-founder of BNPL Hoolah service in Singapore.

Launched in 2018, Hoolah offers BNPL services in Hong Kong, Malaysia, and Singapore through stores like Zalora, Klipsch, and GNC. He declined to disclose his user count, but cited a 400% growth in user numbers over the past year.

“These buyers – aged 25 to 35 – are savvy, they appreciate the flexibility of payments and better cash flow,” Singh said. “It also serves the underbanked – those without access to credit cards – and workers in the odd-job economy. We also notice [younger consumers] prefer to use debit rather than credit.

Unlike traditional hire-purchase, BNPL services are mobile internet products, offering interest-free loans for small amounts, typically starting at a minimum of around HK $ 100 on average.

They receive the product in advance, after making the first payment. In stores, consumers pay by scanning QR codes. BNPL’s online services are integrated with payment options, a trend increasingly adopted by merchants, said Hayashi. Swedish bank Klarna Bank and Australian Afterpay are two of the big names in fintech that Adyen has added to its platform.

For merchants, BNPL generally costs more than credit cards. But vendors say merchants benefit from larger baskets and higher paying customers in return. Often, the vendor assumes the credit risk, pays merchants in full upfront, and takes care of user reimbursement.

Atom, a Singapore BNPL provider operating in nine Asian markets, charges merchants a fee of over 1-3% of transactions, the rate charged by credit card companies.

“We take the risk that customers don’t pay,” said Eric Yu, Managing Director of Atom Hong Kong. “These fees include costs such as marketing, coupons, and credit card fees that we incur. “

Founded in 2019, Atom has 20 million users in mainland China and Hong Kong.

“In return for paying for this service, it has been proven that merchants benefit from increased sales and transaction size of up to 30%, while still benefiting from lower customer acquisition costs compared to traditional channels. Yu said.

The BNPL craze has also drawn traditional banks into the fray, as they aim to cash in in a market that could grow 43% annually over the next three years, according to forecasts by FIS-Worldpay.

Standard Chartered, with roots dating back to British colonial times 167 years ago, announced a US $ 500 million investment in Atom Financial in October. United Overseas Bank (UOB), one of Singapore’s three largest banks, last month announced plans to introduce BNPL service in Indonesia through its digital banking app.

In Hong Kong, virtual bank Livi launched its PayLater product in July, which is “easy for the customer to assess and monitor,” said its product manager, Carol Hung. Livi is co-owned by Bank of China (Hong Kong), Jardine Matheson Group and JD Technology, the fintech arm of JD.com.

Users can split their bills into installments of three to 36 months, leveraging a MasterCard debit account. They pay a monthly processing fee of around 0.20 to 0.80% of the transaction, depending on the outcome of their credit score. Approximately 42,000 users have signed up for their product to date and the average usage time is 12 months.

As the sector matures, the trend is also drawing the attention of regulators, criticized for weak credit controls or encouraging overspending. The Hong Kong Monetary Authority (HKMA) said customers should be aware that some buy-it-now, on-payment service providers may not be regulated, typically non-bank institutions, in an email response to the To post .

For banks, buy now, pay later plans fall under personal credit products and are subject to regulations, such as a “double reminder” for users – emphasizing product features and characteristics. key details, including interest rates and repayment terms, the HKMA said.

Livi, as a licensed bank in Hong Kong, performs credit checks with its own risk models based on data from a variety of sources, including the Credit Bureau and its shareholders. Most applications do not require proof of income from users.

Non-bank institutions have comparatively more flexible credit checks. Atom rates users with its two-minute credit profiling technology, requiring the user’s personal data, identity documents, and an active debit or credit card linked to their account.

BNPL products will go mainstream and experience strong growth, said Hung.

“Hong Kong people have been using installment plans for a long time,” she said. “Buying now, paying later is just a different way of doing things and some may not yet know what the term means. But they are practical and smart. Once they see these plans as something that adds value or helps with cash flow, they get started.

This article first appeared in South China Morning Post.


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