New Study from NUS Calls for Risk-Approriate Regulation for BNPL Schemes

New Study from NUS Calls for Risk-Approriate Regulation for BNPL Schemes

by June 23, 2021

Buy now pay later (BNPL) schemes have witnessed strong growth in Singapore but for the sector to develop in a way that’s beneficial to consumers, rules and regulatory oversight are needed, a new paper says.

Authored by Allen Sng, a Sheridan Fellow with the National University of Singapore (NUS), Faculty of Law, and Christy Tan, a finance lawyer, the paper looks at the state of BNPL in Singapore, explores their benefits and proposes reforms to minimize their associated risks.

The paper says that while Singapore thrives to become a leading fintech hub and has made efforts to facilitate innovation and manage risks in emerging sectors such as cloud computing, robo-advisors and digital payment services, BNPL and other developments in the consumer credit market have just started attracting regulatory attention.

BNPL schemes have grown rapidly over the past few years on the back of changing customer behavior, a booming gig economy, and rising adoption by merchants which view these as a way to boost their sales.

BNPL arrangements are typically offered by digital platforms to enable consumers to pay for their purchases in installments. Most are developed to cater to the spending habits of millennials whom are perceived as more averse to traditional forms of credit and more distrustful of traditional financial institutions than previous generations.

Like in most jurisdictions, BNPL schemes fall outside of the Monetary Authority of Singapore (MAS)’s regulations on credit, which apply to banks and finance companies. But in order for the sector to grow sustainably all the while making sure that consumers are protected, the authors believe that BNPL providers should be subject to maximum credit limits to make sure that consumers do not borrow beyond their means, as well as credit reporting requirements.

BNPL schemes should also be subject to interest rate, fees and total charge restrictions, as well as standardized information disclosure requirements so that consumers are fully aware of the potential costs of using these solutions.

On the other hand, the authors advise against imposing licensing requirements which would come with significant costs and which could potentially stifle innovation. They also discourage minimum income requirements since that would possibly prevent consumers presently excluded from mainstream unsecured credit providers from gaining access to affordable credit.

Amid rapid growth of BNPL schemes, MAS said earlier this year that it would review the appropriate regulatory approach for these arrangements. The aim is to consider the advantages of BNPL arrangements while reducing mounting debt risks for consumers.

“If a regulatory framework is deemed necessary, it will be proportionate to the risks, and ensure that any potential convenience afforded by these BNPL schemes are not unduly curtailed,” Tharman Shanmugaratnam, senior minister and minister in charge of MAS, said in a parliamentary reply in May 2021.

He noted that currently, most BNPL arrangements in Singapore are restricted to small-value purchases. These providers do not apply interest but instead late fees which are typically capped. Further, existing limits on unsecured consumer credit cap the spending on BNPL schemes when repayments are made using credit cards, implying that consumer risks are at present relatively low.

A survey conducted in October 2020 by Singapore-based consumer research firm Milieu Insights found that 38% of Singaporeans, or 1.1 million people, had used a BNPL service. 27% of Singaporeans admitted to being worse off financially due to a BNPL mistake.

Buy now pay later use in Singapore, by gender, Source-, June 2021

Buy now pay later use in Singapore, by gender, Source:, June 2021

Though BNPL arrangements still account for a small portion of payment card spending, activity has surged drastically over the past years. Fintech and payment research firm Kaleido Intelligence estimates that BNPL transaction value jumped 292% between 2018 and 2020 amid the surge in e-commerce activity.

Bank of America believes that the pandemic-fueled e-commerce boom could see the alternative model grow 10-15 times its current volume and reach as much as US$1 trillion in gross merchandise volume (GMV) by 2025.

If you are interested to further explore the societal impact of BNPL schemes, do check out our webinar below:


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