30th March 2023 - 3 min read
Bank Negara Malaysia (BNM) has highlighted that there is a growing trend of buy-now-pay-later (BNPL) users missing their repayments, as indicated by data from several larger players in the industry.
Revealed in its Financial Stability Review for the second half of 2022 (2H22), BNM noted that the share of BNPL users with overdue payments in the fourth quarter of 2022 (4Q22) has risen to 17%. This is in comparison to the 14% that was recorded for the second quarter of 2022 (2Q22), and 7% in 4Q21.
That said, BNM reassured that the financial stability risk associated with BNPL schemes remains limited. This is because BNPL only accounted for 0.05% of Malaysia’s total household debt. The central bank is, however, concerned with the possibility of heightened conduct risk. Briefly, conduct risk is defined as actions taken by financial institutions that may ultimately lead to the detriment of, or poor outcomes for their customers, or in extreme cases, even affect market stability.
Aside from noting the rising trend of missed repayments among BNPL users, BNM also drew attention to the fact that BNPL schemes continue to appeal specifically to selected segments of Malaysian households, namely younger and lower-income borrowers. In fact, two in five BNPL users are found to be youths, aged between 18 to 30 (about 44%). Meanwhile, four out of five BNPL users earn a monthly income of less than RM3,000 (more than 80%).
“The relatively easier access to BNPL facilities may place users at a higher risk of spending beyond their means, without considering their ability to promptly repay the full loan amount. Given the lack of transparency over fees and charges, particularly late payment charges and processing fees imposed under these schemes, users may also be unaware of the total amount that they must repay,” BNM further said.
As such, BNM said that it has taken steps to mitigate this risk for BNPL schemes offered by entities that fall under its purview. Some steps that have been implemented thus far include requiring licensed financial institutions and approved e-money issuers to adhere to existing responsible lending standards, as well as improve disclosures of all applicable fees to their BNPL users. They must also set reasonable late payment charges, instead of taking advantage of their users.
The central bank is also working hand-in-hand with the Ministry of Finance and the Securities Commission Malaysia to accelerate the introduction of the Consumer Credit Act.
“Once enacted, non-bank credit providers such as BNPL providers will be required to comply with relevant prudential and conduct standards. Apart from promoting a level playing field between banks and non-bank BNPL providers, these ongoing efforts aim to accord the same level of protection to financial consumers in relation to BNPL schemes, regardless of which provider they deal with,” said BNM, adding that the CCA will also help younger and lower-income borrowers avoid taking on excessive debt.
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