BNPL fraud in Southeast Asia is seeing a rapid rise with fraudsters exploiting weaknesses in these platforms and developing sophisticated methods to deceive users for financial gain.
A new report by Rest of World sheds light on how scammers are targeting BNPL platforms in Vietnam by exploiting a loophole that allows users to turn their credit into cash through so-called cash-outs.
In these BNPL fraud schemes, borrowers in need of cash agree to use their BNPL credit to pay bills for lenders, expecting a cash transfer minus a small fee.
However, many lenders vanish without sending the promised money, leaving borrowers responsible for repaying the BNPL providers with high interest.
How scammers are targeting BNPL users in Vietnam
One victim, Dang Thi Han from southern Vietnam, used the Shopee SPayLater system to pay a person’s utility bills in exchange for cash. She paid VND 611,000 (US$25) but the person disappeared, leaving her stuck with the debt.
Dang’s experience is not uncommon in Vietnam, with many others falling victim to similar scams facilitated through Facebook groups.
Rest of World reports that hundreds of BNPL cash-out groups exist on Facebook, connecting lenders with bills to borrowers in need of cash.
Lu Tan Tu, an SPayLater user who has been offering cash-out services as a side hustle for over a year, estimates that around 70% of those advertising cash-outs in these Facebook groups are scammers.
While TPBank, which handles SPayLater’s credit in Vietnam, states that the BNPL system is only to be used for purchasing goods and services on the Shopee e-commerce platform, using it to pay utility bills does not technically violate these terms, Huy Pham, a finance lecturer at the Royal Melbourne Institute of Technology (RMIT) in Vietnam, told Rest of World. This creates somewhat of a gray area for the rising peer-to-peer (P2P) lending practice.
BNPL fraud exploits Singaporean users through Singpass scams
This type of scam is just one example of how BNPL platforms are being exploited.
In Singapore, a different scheme came to light in September 2023 when police arrested two men and a woman for their involvement in job scams using a BNPL service.
At least 32 victims were tricked into registering for a BNPL account using Singpass, Singapore’s national digital identity system, and handing over their account details. These accounts were then used to make purchases at electronic stores, with the items subsequently collected for resale. The victims were assured that the installment plan would be paid, but were ultimately left with outstanding payments amounting to more than US$76,000.
BNPL fraud is not a new phenomenon. As early as 2021, CNBC reported that criminals were exploiting weaknesses in the application processes of BNPL platforms, often using clever tactics like identity theft and account takeovers, making unsuspecting victims foot the bill.
These schemes are facilitated by the fact that many BNPL firms do not conduct formal credit checks, instead relying on internal algorithms to quickly assess new clients. This creates vulnerabilities, allowing fraudsters to easily slip through by providing fake or stolen information.
Tackling BNPL risks
BNPL is a payment option that allows consumers to purchase items and pay for them in installments over a period of time, rather than paying the full amount upfront. Many BNPL services offer interest-free periods if the balance is paid off within a specified time frame, making them more attractive than the often higher interest rates of credit cards.
Furthermore, BNPL services often have more lenient approval criteria compared to traditional credit products, which can be beneficial for individuals with limited or no credit history and in regions with restricted credit access.
In Southeast Asia, the popularity of BNPL has surged due to the significant number of people without access to traditional credit, the region’s large, tech-savvy population, and the rapid expansion of e-commerce.
In Malaysia, there are currently 3.7 million active BNPL users, according to the Consumer Credit Oversight Board (CCOB). CCOB task force deputy head Azryta Abdul Aziz told the New Straits Times in June 2024 that the BNPL industry has recorded consistent double-digit growth, with 77.3 million transactions worth MYR 6.2 billion (US$1.5 billion) in 2023. Similarly, Indonesia sees about 7 million BNPL debtors each month, according to Channel News Asia (CNA).
Although BNPL arrangements offer a flexible and convenient way for users to shop and manage purchases, they also pose risks, including overspending and accumulating debt.
In Indonesia, consumer debt related to BNPL schemes reached IDR 6.13 trillion (US$382 million) by March 2024, a 23.9% increase compared to the same period the previous year, CNA reported, citing data from the Financial Services Authority (OJK).
In Malaysia, overdue payments for BNPL services stood at 4% as of September 2023, with 1.3% of users missing payments for more than three months, according to CCOB data, reported by CNA. The unpaid balance for BNPL transactions totaled MYR 900 million (US$665 million).
The rapid growth of BNPL services has sparked concern among regulators worldwide. In the UK, the government has announced plans to regulate the BNPL industry, emphasizing the importance of protecting consumers and creating certainty for the industry.
In Malaysia, Bank Negara Malaysia has spearheaded efforts to introduce the Consumer Credit Act (CCA), which aims to increase consumer protection by regulating non-bank credit providers like BNPL companies. The legislation established the CCOB and the Council for Consumer Credit Malaysia (CCC) to ensure fair treatment across financial services providers, including non-banks.
In Singapore, industry trade group the Singapore Fintech Association has introduced a BNPL code of conduct, which includes protections such as limits on outstanding payments, caps on fees, and transparent disclosures “to mitigate the risk of consumer over-indebtedness.”
According to estimates from super-app operator Grab, BNPL spending in Southeast Asia is projected to grow by over US$7.9 billion by 2025, reaching a total of US$8.83 billion. Indonesia is expected to lead this growth, accounting for 58% of BNPL spending on e-commerce platforms by 2025, or US$5.15 billion.
Featured image credit: edited from freepik
