From gaining popularity in retail and e-commerce to getting reviewed by the Monetary Authority of Singapore (MAS), Buy Now Pay Later (BNPL) is picking up even more attention in Singapore.
Despite having already shed some light on the misconceptions about BNPL financial services, plenty of myths still surround the industry. As a new form of financial service in Singapore, it is only natural for people to misinterpret and make judgements based on surface-level knowledge.
But the fact is, the myths the public holds about BNPL — such as viewing BNPL as an insecure cyber platform, a service that encourages irresponsible spending behaviour, or a credit trap that profits off customer penalties — are by and large, untrue.
It is first important to note that not all BNPL services are the same. While there are businesses that label themselves as a BNPL, some are actually a lending business that allows consumers to make borrowed payments at a later date. To be more specific, BNPL actually refers to platforms such as hoolah, that allows consumers to purchase what they need now, and pay for that particular purchase later in three interest-free instalments.
As a consumer-centric business, hoolah helps customers purchase responsibly, values transparency, and even encourages quality, sustainable consumer decisions. In fact, we believe that BNPL may even be a superior alternative to credit cards or traditional bank loans, where interest fees are a main revenue driver for their business.
Studies back up our claims. It has been observed that concern over credit card interests, hidden debts and revolving debts have led to increasing demand for BNPL. A 2020 Finder report shows that about 1.1 million Singaporeans have used a BNPL platform, and 87 per cent of the surveyors who are millennials are the most likely age group to have used BNPL.
So, instead of fearing that which you don’t understand, here’s the lowdown on some misconceptions about BNPL.
Myth #1: Encouraging overspending
Often, people claim that BNPL encourages overconsumption. This is because it allows users to think that they are able to spend more on the platform as using BNPLs would make the purchase seem more affordable due to the instalment format.
On the contrary, according to the same report by the Finder, it was found that BNPL has in fact had little to no effect on consumer spending habits. 73 per cent of Singaporeans surveyed claimed that they were not financially worse off while using BNPL services.
We take it one step further by implementing spending limits that are personalised to each user. If a hoolah user has hit their spending limit, our algorithm automatically rejects further transactions from being charged, deterring overspending.
We also encourage our users to practise responsible spending by creating social content that is educational in nature, such as financially savvy articles on our blog. We take our role in educating the public about financial literacy and responsibility seriously, and our BNPL services are intended to help the public reduce the impact of price, upfront spend, and ultimately cash flow affordability.
Interestingly, consumers are also moving away from fast consumption, to making better quality purchases, because of the financial stability that BNPL provides. A recent survey revealed that 72.6 per cent of consumers agreed that using BNPL services have allowed them to increase their purchases or to buy products that are of higher quality.
Similarly, RetailBiz shares how BNPL helps to ease cash flow problems for consumers by splitting up the payment into bite-sized instalments. This has two benefits to the consumers: their monthly cash flow has expanded and is thus more flexible. This, at the same time, allows them to make smarter, better quality decisions about the products and services they are introducing into their lives.
Indirectly, BNPL can help consumers make responsible and sustainable purchasing decisions – buying fewer, but better quality products, while reducing waste and the impact of their purchases on the environment.
Myth #2: Unreliable cybersecurity
As technology advances and e-commerce increases in popularity, the digitalisation of our lifestyles also raises concerns about the security of one’s personal data. With horror stories of data breaches and virus attacks abound, it is understandable why consumers are concerned regarding the cybersecurity of BNPL platforms.
A 2018 report done by Shape Security, a cybersecurity firm, revealed that about 90 per cent of e-commerce websites’ global login traffic came from attempted credential stuffing attacks that year. This means that user accounts were breached using bots, leaving user information vulnerable to be used for irresponsible usage.
That’s why at hoolah, we’ve invested in building a bank-grade infrastructure that is robust and secure. Within our tech stack is our own proprietary risk decision engine, built and operated by our CTO, Jason Van, who previously spearheaded the technology for a global BNPL company and has a deep expertise in creating and implementing systems that are considered benchmarks in the industry for managing fraud and resilient payments.
Our proprietary fraud and risk management engines dynamically score each consumer’s interaction every time that consumer enters our environment. A wide range of consumer attributes are reviewed and assessed in real-time during an order process. Our risk engines heuristically learn from past behaviours of consumers to continually assess the purchase limits that we will allow for each individual consumer.
Myth #3: Profiting from late fees
A financial service that helps consumers spend responsibly without profiting from them? Sounds a little too good to be true.
But it is the truth. We generate revenue from merchants, not consumers. While we charge late fees for users who miss the deadline for their installment payments, it is not an income driver for the business.
Also Read: Lessons from the buy-now-pay-later boom
For late fees, hoolah charges S$5 for orders under S$100 and S$15 for orders under S$1,000. This is subject to a cap of S$60. This amount is only charged when a consumer misses the scheduled due date or the 48-hour grace period. Otherwise, the main source of our income comes from our merchants such as global brands Nike, PUMA, Secretlab, Samsung, and more.
We take any penalties imposed on our customers seriously. Our first step of action for consumers with overdue payments is not to make an automatic charge, but to reach out and notify them of a pending payment that needs to be resolved.
Usually, late payments are often caused by forgetfulness and oversight. In cases where urgent reasons like health issues or a change of employment status have caused such delays, we have even waived the penalties.
In summary, encouraging spendthrift behaviours, cybersecurity breaches and profiting from consumers only make up a few of the many myths around BNPLs.
Again, these concerns around BNPL platforms are understandable as it is a relatively new concept to the retail scene in Singapore. However, we always urge users to be financially savvy and make more informed purchasing decisions. Moving forward, there will always be newer establishments that may seem skeptical at first, but it is important that we remain open to new ideas and look for the right information from the correct sources.
The world is constantly evolving and all we can do is to learn and adapt to it. Who knows, maybe BNPL will be the next primary mode of payment in Singapore and beyond?
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