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Exploring the Rise of BNPL: Unlocking Affordability or Encouraging Overspending?

Written by Gideon Ng Published on   5 mins read

These interest-free installments could have some hidden dangers that not many are aware of.

Does that USD 300 pair of sneakers seem too expensive for you? With Buy Now, Pay Later (BNPL) services, it’s possible for you to split your purchase into three or four equal payments, without having to pay any interest at all.

With the explosion of e-commerce sales, BNPL is slowly becoming one of the popular ways to transact, with the global market being projected to grow from USD 22.86 billion in 2022 to USD 90.51 billion by 2029. While these schemes provide increased flexibility and affordability, could they encourage unnecessary spending?

Why is BNPL a problem?

BNPL payment methods may seem like a more attractive option than credit cards, as they typically do not charge any interest. here are some drawbacks to using them.

A false sense of financial security

BNPL companies are the most beneficial to populations that do not have access to credit, particularly those with little or no income. With the current high interest-rate environment, the demand for interest-free loans has never been greater. These companies can provide an alternative form of credit to make purchases that are otherwise not possible.

However, BNPL services can create a gray area between offering a flexible, convenient payment method and encouraging overspending. Without sufficient financial education, customers may struggle to effectively budget for all their wants.

The psychological trick of splitting up the total cost of an item into three or four separate payments makes the upfront cost seem more affordable, which could give the consumer the false impression that they have greater purchasing power. This may result in the consumer being unable to pay back the amount they owe these companies. Furthermore, the Consumer Financial Protection Bureau in the US found that some products did not adequately disclose fees and penalties associated with late payments, so these individuals may unknowingly end up in a debt trap.

BNPL services are not regulated as credit products

The current regulatory framework is not robust enough to include BNPL services within their jurisdiction. These laws govern traditional forms of credit, like credit cards or bank loans, but not the interest-free installments that are offered by BNPL providers.

For example, BNPL services are categorized as “unregulated credit” in Australia because they fall under one of the exemptions of the National Consumer Credit Protection Act 2009, and they do not need to hold an Australian Credit License (ACL) to operate in the country. This exempts providers from stringent requirements that apply to traditional credit products.

This regulatory distinction has allowed BNPL providers to offer relatively low maximum credit limits, such as around AUD 2,000 (USD 1,340) in Australia, and SGD 2,000 (USD 1,500) in Singapore, which may seem a small amount.

However, these providers are not required to share their users’ data with one another or with credit bureaus. Coupled with the lack of stringent affordability checks before these loans are disbursed to the consumer, it is possible for consumers to obtain the maximum credit from each provider and accumulate more debt than they can repay.

Negative impact on credit scores

Since BNPL providers are not required to report to credit bureaus, frequent users of this service are disadvantaged, as repaying BNPL loans does not help to build their credit score. Even though the consumer diligently pays back their BNPL loans on time, these will not be considered when one’s creditworthiness is being assessed.

As a result, people who frequently use BNPL methods may experience difficulties when applying for loans, where they may face higher interest rates or reduced loan amounts.

Conversely, a BNPL company may report a late payment to a credit reporting company, which would negatively affect your credit history.

Notable BNPL companies

Here are some of the companies that are shaping the current BNPL landscape:


This Australian company was founded in 2015 and offers customers a pay-in-four payment plan (a plan that allows consumers to repay the loan amount in four installments) that spans across six weeks. Each customer starts out with a spending limit of USD 600, which increases over time if they are able to make payments before they’re due. If the customer is unable to repay in time, a late fee will be imposed, depending on the original order value.

Apart from this BNPL service, AfterPay has introduced the Pay Monthly plan to US customers, where consumers can take a six or twelve-month interest-based loan for items that cost more than USD 400. The interest rate is based on your credit history, as well as your repayment history with AfterPay’s pay-in-four service.

Block, Inc. acquired the company in January 2022 as it attempted to expand its presence in the BNPL market and offer BNPL functionality to small and medium-sized businesses using its Square payment platform.

Apple Pay Later

The tech giant is the latest to get into this rising trend as it announced its BNPL service for US customers in March 2023.

Similar to AfterPay, Apple Pay Later offers a pay-in-four plan of up to USD 1,000 within the Apple Wallet app. The service does not charge any interest or fees for late payments, but you would not be able to make new payments until all of your existing loans have been repaid.

Apple has stated its intention to report Apple Pay Later loans to US credit bureaus, which could encourage more responsible spending via this service.


Closer to home, Atome has seen tremendous growth in Southeast Asian markets, serving seven countries like Singapore, Malaysia, Thailand, and Vietnam.

In contrast to other providers, Atome offers a pay-in-three plan, where the remaining two installments after the initial first payment are spread 30 days apart. The maximum spending limit is higher for consumers that use a credit card for purchases compared to a debit card.

Atome charges a late fee for every missed payment, and similar to AfterPay, this depends on the total order amount.

Despite pulling out from Hong Kong due to an “unpredictable and depressed macro environment,” Atome’s parent company, Advance Intelligence Group, raised USD 80 million in a recent funding round in May 2023. Moreover, Atome has received in-principle approval to operate as a major payment institution from the Monetary Authority of Singapore, which allows Atome to expand its suite of financial services to include cross-border money transfer and merchant acquisition services.

The rise of BNPL transactions has led to greater scrutiny of these providers, and regulations are starting to take shape to address these concerns and protect consumers. The next article in this series will delve into proposed regulations and their potential impact on the BNPL market.


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