The number of consumers availing themselves of the “buy now, pay later” (BNPL) payment scheme will surpass 900 million globally by 2027, up from 360 million this year, according to a new report.
This growth of over 150% will be driven by the increase in demand for low-cost credit solutions on the back of the expected economic downturn, says Juniper Research.
With BNPL services not requiring a hard credit check before lending approval, merchants are accepting the payment method in increasing numbers.
Consumers, meanwhile, are warming to the concept that allows them to spread the cost of their purchases without interest charges, making BNPL an appealing alternative to purchasing with credit cards. And for younger consumers just entering the job market with no access to credit facilities, BNPL provides a practical option.
Although there are typically no interest charges on instalment payments made on time, consumers are charged late payment fees and often interest on an outstanding balance.
With a number of Asian economies now bracing for a slowdown amid global recession worries and rising energy costs, it is difficult to predict if consumers in the region will be able to sustain their buying appetite.
Radek Jezbera, chief executive officer of Kilde, an alternative investment platform licensed by the Monetary Authority of Singapore, says: “We are yet to witness BNPL perform under recession. Nevertheless, due to the short-term nature of the loan, relatively small transaction size, and near prime customer segment, I would expect BNPL's credit risk performance to be affected less than traditional consumer credit. Another question is if the volumes of BNPL loans, highly correlated with consumer sales, will be negatively affected by the recession."
In its report, Juniper Research sees India as meeting the criteria for rapid BNPL growth, with users forecast to grow from 25 million in 2022 to 116 million by 2027 due to increasing spending via e-commerce.
"India has a growing middle class, app payments are replacing cash transactions, and e-commerce is booming. Therefore, all prerequisites for BNPL growth are in place,” says Jezbera. “However, if BNPL can maintain 35% year-on-year growth as implied in the research, it will depend on the competitive reaction of the incumbent banks and regulatory response.”
He also cites Indonesia as another market prime for BNPL growth. “In Southeast Asia, we see a big push from the major BNPL players to enter each local market. We believe that Indonesia has immense market potential for BNPL. Nevertheless, the mature markets of Singapore and Hong Kong demonstrate higher average merchandise value and better risk performance," Jezbera adds.
With softer regulation and diluted credit checks, the payment solution could present a serious risk of consumers spending beyond their means. And as the market is still in its nascent stages, financial regulators will need to keep pace to initiate appropriate and necessary regulations, the report says.