Buy-now-pay-later (BNPL) schemes may prompt consumers to spend beyond what they could afford, says Bank Negara Malaysia (BNM).
According to Malay Mail, BNM is now working with the relevant agencies to address concerns over these buy-now-pay-later schemes.
Despite its exponential growth, the BNPL sector remained unregulated. Market researchers have estimated that the transaction volume of BNPL would grow over RM2 billion this year alone, driven mainly by the pandemic as Covid-19 curbs forced shoppers to go online and hunt for discounts.
“Although BNPL schemes typically allow customers to make payments for purchases in installments at zero interest, consumers need to be aware that there may be other charges levied (eg processing fees and late payment fees),” BNM was quoted as saying by Malay Mail.
“In some cases, the total charges levied by BNPL providers on the customers may be higher than the total interest and charges imposed by traditional lenders for products such as credit cards.”
As of now, BNPL schemes offered by non-bank operators do not fall within the regulatory purview of BNM or any other regulatory agency.
However, the Ministry of Finance and the Securities Commission are currently working together to enact the Consumer Credit Act (CCA) in 2022 which will also entail the establishment of the Consumer Credit Oversight Board (or CCOB).
“The CCOB will eventually serve as the sole conduct authority for all consumer credit activities, starting with those offered by credit providers that are currently unregulated by any authority, such as BNPL schemes offered by non-bank operators,” BNM said.
Meanwhile, it was reported that there are currently close to a dozen BNPL service providers in the Malaysian market, with more expected to join. On the other hand, banks and other traditional credit providers are also expected to join the bandwagon as they are working on developing their own BNPL scheme.
BNM said with the enactment of the CCA, non-bank BNPL providers are “envisaged to be subject to appropriate regulatory requirements including responsible lending practices to mitigate the risk of BNPL being offered to customers who are unable to repay.”
“Such providers will also be subject to expectations on consumer protection, risk management and Shariah compliance.”
“For BNPL schemes offered by, or in partnership with banking institutions, the banking institutions are expected to observe practices that are consistent with the existing responsible lending requirements.” it added.
Meanwhile, BNM has advised consumers to exercise caution and make informed decisions when purchasing with BNPL schemes and pay extra attention to the terms and conditions, especially when it comes to fees and charges.
BNM also encouraged consumers to pay the installments in full and on time to avoid penalties, while at the same time keeping track of BNPL commitments so debts are well-managed.
“They can easily add up if not careful,” the bank warned.