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What Is Buy Now, Pay Later (BNPL)?

fintech digital payments apac

Buy Now, Pay Later (BNPL) is a short-term financing that allows consumers to make their purchases and pay for them later. They are an instant approval point-of-sales loans, commonly in interest-free instalments, split over a couple of months. It is seen to have seamlessly integrated into a commonplace payment method at brick-and-mortar and e-commerce retailers.

The concept of BNPL is targeted at the younger consumer with the idea of splitting their payments into much more affordable installments. BNPL adoption rate is significant among Gen Z and Millennials. Merchants welcome the use of BNPL payment methods as they help to boost sales, increase conversion rate at checkout and even increasing their consumers’ basket size.

BNPL companies profit by partnering with retailers who pay them a percentage of the sale that comes through or platform fee for allowing merchants to use their platform. For users who default on their payments, they are also liable to late fees.

Who Are the Main Players in Asia Pacific?

While BNPL is still relatively new in Asia Pacific, the region has welcomed a handful of frontrunners BNPL companies. There are three types of BNPL players, standalone BNPL player, superapps and banks that are disintermediated.

Here is a list of the common standalone BNPL players you might have heard of in the BNPL industry:

  1. Reepay (Vietnam) – Founded in 2020 and one of the first BNPL in Vietnam that addresses a local market size of 80 million consumers.
  2. Akulaku (Indonesia) – Founded in 2016, with over US$218 million raised and US$100 million to be followed in their next round, it is in the running of becoming SEA’s next unicorn.
  3. Pace (Singapore) – Founded in 2021 and available at more than 900 points-of-sale across Asia Pacific, it has recently secured an eight-figure debt financing.
  4. Hoolah (Singapore) – Founded in 2018 and recently acquired by Shopback, Hoolah made wave with its eight figure Series A fundraise back in 2020.
  5. Cashalo (Philippines) – Founded in 2017, launched by a Hong Kong-based FinTech startup, Oriente, the platform now boasts a total of five million users.
  6. Atome (Singapore) – Founded in 2019, it was recognized with the Technology Excellence Award for Payments (FinTech) in 2021 and currently have more than 3,000 merchant partners.
  7. Plentina (Philippines) – Founded in 2020, with more than 30,000 app downloads and US$2.2 million raised in recent seed round, this young FinTech has set its sight on expanding further across SEA region with a focus on emerging markets.
  8. Rely (Singapore) – Founded in 2017, Rely uses algorithms to determine consumer’s spending capacity and it received S$100 million worth of financing in 2020.
  9. Split (Malaysia) – Founded in 2018, it has processed more than RM10 million nationwide in months with more than 250 local merchants on their platform.
  10. Kredivo (Indonesia) – Founded in 2016 with a total of US$200 million raised, it aims to serve 10 million consumers in Indonesia itself.

Other companies that do not focus on BNPL but has also recently offered BNPL payment method to increase market share are Grab, a Southeast Asian superapp unicorn that offered BNPL as one of its payment methods and Razer has partnered with a BNPL provider, Rely to offer interest-free BNPL solutions for their own customers.

When Did BNPL Start in Asia Pacific?

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The traditional ‘installment payment’ was the precursor for our modern BNPL payment model, while it previously used to be limited for big-ticket purchases to make it affordable. BNPL boomed in Asia Pacific along with the emergence of COVID-19. Along with the financial uncertainty caused during the pandemic, consumers have become more cautious with their spending and reshaped the retail sector. It was a good opportunity for BNPL solutions to come in to replace traditional financing method. For consumers, BNPL companies have helped to increase financial inclusion across the region.

BNPL became a method for merchants to scale their business and move out of COVID-19. Across Asia, e-commerce is growing by 80% CAGR. As the pandemic eases, merchants viewed BNPL solutions as an opportunity to recover their sales among the cautious spenders and allow them to tap on a larger customer base. In Singapore, BNPL is the fastest-growing online payment method. Currently accounting for just 3% of the market and expected to reach 13% by 2024. With the limited access young consumers have to credit, BNPL is the perfect solution.

With the rapid growth of FinTech and lack of credit card penetration, BNPL solutions becomes easier to grow in this region. This solution is ideal for Gen Z and Millennials in a global pandemic with a promise to safer, easier financing alternative.

There is also a growing investor demand for BNPL companies, and it has attracted a significant amount of capital investment. The APAC investor interest is apparent in recent funding news like, Pace securing US$40 million funding, and StanChart’s investment in Singapore-based Atome.

Key Stats Around the Valuation On The Sector

Globally, the BNPL sector is expected to grow from US$7.3 billion to US$33.6 billion by 2027 with a compound annual growth (CAGR) of 21.2%. While Asia Pacific is expected to be the fastest-growing region due to the extensive Internet users, with a total of 400 million Internet users in that region.

About 38% of Singaporeans (1.1 million) people have used a BNPL service. With one of the key BNPL player in SG, Hoolah reporting a 280% increase in partner retailers from 2019 to 2020. Currently, BNPL makes up 3% of Singapore’s ecommerce market and within the next four years, it is forecasted to grow to 13%

In Australia, they are leading in the growth of BNPL with 55% from 2019 to 2020. More than 5.8 million Australians have a BNPL account. In the next five years, this sector is expected to see a 10% annual increase due to the surge of online purchases and eCommerce in Australia. BNPL will make up 20% of Australia’s ecommerce market by 2024. By 2024, New Zealand is also expected to overtake credit card as the most popular payment method.

The Future Of BNPL

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As compared to matured regions, Asia is still fragmented and majority of consumers are still unable to access credit, unbanked or underbanked. Asia Pacific is still a market that holds strong potential. With no current leader in BNPL, it is expected that firms with the strongest digital service ecosystems will pull ahead in this race than those who can only offer a limited offering.

The BNPL industry in APAC is still at an infancy stage, holding a strong potential of growth with merchants’ and consumers’ gradual acceptance of BNPL payment model. Additionally, Asian countries typically hold a much more conservative mindset when it comes to debt and spending, which suggests an opportunity for BNPL FinTech startups.

We can expect in the near future, as more BNPL companies enter the market, the use of incentives will increase to increase usage. BNPL companies with abundance of financial resources would most likely be well-positioned to gain the most market share.

Merchants on BNPL have seen immediate business results like sales conversion and repeat purchases, suggesting that BNPL solutions has a positive business impact on merchants. For consumers, BNPL provide the convenience of payment and finance control. Merchants in APAC will most likely jump onto the bandwagon of BNPL and e-payment to avoid losing out and utilizing BNPL companies to scale their business. Over time, BNPL will become an alternative for merchants to obtain their consumers’ data to better understand their preferences and tailor an improved experience for them. This data will be extremely important as in APAC, with most of the unbanked/underbanked population, such data is scarce and difficult to obtain.

Despite the evident positive impact that BNPL has on APAC’s consumers and merchants positively, regulators and governmental authorities have raised concerns on the BNPL industry regulations. They do not fit in the category of traditional loans and regulators have been advocating for stricter regulations to protect consumers. The negative discourse of BNPL is that it fuels consumer debt as the business model is dependent on sustained and continuous spending. Undoubtedly, regulators across APAC will be reviewing the regulatory approach for BNPL. With the strong business model that is both merchant- and consumer-oriented, having the right framework will only propel the adoption of BNPL and allow both parties to benefit in a safe and secure manner.

How We Can Help

As we expect the regional landscape to become more competitive with more BNPL players joining the market, the BNPL industry will become more sophisticated as BNPL companies seek to differentiate themselves from competitors. This will drive the need for FinTech talents to help BNPL companies succeed and scale. At Storm2, we understand how important it is to understand the market to connect companies with the right FinTech talent to help them succeed. Are you an emerging BNPL business eager to succeed? Reach out now to find out how you can find the best and brightest mind of the industry.