Lending

MAS Says BNPL Does Not Pose Significant Risk at This Stage

Buy Now, Pay Later (BNPL) schemes do not pose a “significant risk” to household indebtedness as they are not yet widely used relative to other payment methods, according to a Parliamentary reply yesterday.

The popularity of the BNPL scheme has led to concerns of rising consumer debt worldwide as the sector is largely unregulated.

In the reply, Tharman Shanmugaratnam, Senior Minister and Minister in charge of the Monetary Authority of Singapore (MAS) estimates that the total value of BNPL transactions in 2020 at around S$114 million.

This is still a relatively small fraction of the S$92 billion in credit and debit card payments over the same period.

He added that the current features of BNPL schemes in Singapore are actually effective in mitigating the risk of excessive debt accumulation by consumers.

Tharman Shanmugaratnam

“For example, BNPL users’ accounts are subject to credit limits. They will typically be suspended by the BNPL provider – that means no further use of that BNPL scheme – once a payment is overdue. Late payment fees apply, but these are typically capped.

As BNPL schemes do not charge compounding interest on the outstanding amount, the risk of rapid debt accumulation is also not large. As of end 2020, the total outstanding value of BNPL transactions was about S$12 million. This includes the value of instalments that had yet to fall due.”

However, MAS will still assess whether a regulatory framework is necessary to guide the evolution of BNPL schemes as they become more widely used in Singapore.

Tharman said that the framework could include adoption of fair dealing practices by BNPL schemes to ensure transparency with consumers.

The regulator has reportedly been engaging BNPL providers and has been reviewing the experience in other jurisdictions where such schemes are more prevalent.