As Singapore moves towards a cashless society, “buy now, pay later” (BNPL) platforms are becoming an increasingly popular mode of payment in the city-state. BNPL is a flexible form of short-term financing that allows consumers to pay for goods over time through interest-free installments. It first became available in Singapore in 2017. Notable Singapore-based BNPL companies include Hoolah, Rely, Pace, and Atome.
How do BNPL services operate?
BNPL primarily functions as an arrangement between a consumer, financier, and merchant. The consumer buys goods or receives services from a merchant. The financier pays the merchant on behalf of the consumer, who then repays the financier over time. For example, Hoolah and Atome divide the total cost of their products or services into three interest-free installments.
The appeal of BNPL is that consumers no longer need to pay the full amount in one go. Furthermore, companies charge 0% interest for transactions, although late payment charges can rack up quickly.
An emerging and promising market
BNPL is a small but rapidly growing corner in fintech. Singapore’s minister of state, Alvin Tan, said in April 2022 that BNPL transactions in the city-state amounted to SGD 440 million (USD 317 million) in 2021, accounting for less than 0.5% of the total credit and debit card payments that year. Additionally, a study conducted by Milieu in July 2021 revealed that 19% of Singaporeans have tried BNPL services. This form of installment payments is projected to grow exponentially over the next few years.
The rise of BNPL in Singapore
In recent years, BNPL has started to gain traction. A major contributor was the increased usage of e-commerce platforms during the pandemic.
Additionally, millennials, who form the largest segment of BNPL consumers, have begun entering their spending years. Millennials tend to be risk-averse in spending, having experienced recurring market volatility during their formative years. Thus, BNPL provides an appealing and relatively safe mode of payment without hidden fees or interest.
Milieu reports that Singaporeans consider cashback rewards and promotions to be key considerations that have led them to adopt BNPL. Hoolah’s partnerships with e-commerce companies Zalora and Pomelo offer tempting discounts, while Rely boasts generous cashback rewards.
The popularity of small-ticket purchases
Surprisingly, the majority of Singaporeans use BNPL for smaller purchases. Milieu found that approximately 48% of BNPL purchases are SGD 100 (USD 72) or less. The consensus among Singaporeans is to avoid debt—70% of Singaporeans agree that big-ticket items should be paid for in full rather than through installments. The BNPL users who did report higher average ticket sizes were part of higher income brackets.
The potential societal risks of BNPL
Although most consumers are careful spenders, the credit lending aspect of BNPL may attract customers who use BNPL to cover impulse purchases. With concerns of overspending and rising debt among “youth and impulsive buyers,” the Monetary Authority of Singapore (MAS) has plans to review the “appropriate regulatory approach.”
Some companies have already established measures to mitigate excessive debt. Users who accumulate overdue payments may be suspended from making purchases, and late fees are capped. For example, Atome will freeze a customer’s account if they fail to pay on time, incurring a SGD 15 (USD 11) charge for each deferred installment. For Hoolah, late payment fees are calculated by the order value and are charged for each overdue installment, capped at three missed installments. Minister Alvin Tan has stated that “the risk of rapid debt accumulation… is not large.”
Rising investment in BNPL means greater sector growth
According to a Q4 2021 BNPL survey by Research and Markets, BNPL payments in Singapore are expected to grow by 52.6% annually, reaching USD 773.9 million in 2022. Overall, Singapore’s BNPL gross merchandise value is expected to increase from USD 507.2 million in 2021 to USD 3 billion by 2028.
The BNPL market has also attracted many notable investors. Hoolah raised an eight-figure sum in its Series A round led by Allectus Capital. Its investors include Singapore-based iGlobe Ventures, Genting Ventures, and Max Bittner, the former CEO of Lazada. Similarly, Rely closed a seven-figure deal for its pre-Series A round in early 2019, led by Goldbell Financial Services.
Major companies have also stepped in to provide funding for BNPL companies—Standard Chartered plans to provide USD 500 million in financing for Atome in a ten-year partnership. The fintech firm is expected to be valued at USD 92 billion by 2025 in Southeast Asia.
BNPL has emerged as a market with high potential and promise, with many parties backing its growth. For consumers, it can be an appealing alternative payment method, providing easy access to short-term credit. It could be a useful option for those who have little or no credit history, or a potential pitfall for those with little self-restraint.