Malaysia’s central bank is working with the Finance Ministry and Securities Commission Malaysia to enact laws to better regulate ‘Buy Now Pay Later’ (BNPL) schemes.

Bank Negara Malaysia and the two parties are working together to enact the Consumer Credit Act (CCA) in 2022.

“The CCA will strengthen regulatory arrangements for all consumer credit activities, including BNPL schemes offered by non-bank operators,” the central bank said in its annual report published on Wednesday.

BNPL schemes offered by non-bank operators currently do not fall within the regulatory purview of the central bank or any regulatory agency, according to Bank Negara.

For BNPL schemes offered by, or in partnership with banking institutions, the banking institutions are expected to observe practices that are consistent with the responsible lending expectations, Bank Negara said.

“To further mitigate the risks that BNPL schemes may encourage consumers to spend beyond their means, we have also worked with the Financial Education Network to educate the public on the risks of using BNPL schemes,” it added.

Southeast Asia super app Grab and Sea Ltd’s e-commerce platform Shopee have started providing BNPL options in Malaysia since last year. Advance Intelligence Group’s Atome, Pine Labs’ Fave, Allectus Capital-backed Hoolah, 500 Startup-backed Split are among the FinTech startups that provide such services in the country.

Beyond the regulated activities, the central bank said it also monitors new market developments to ensure they do not pose any undue risks to the public, including the BNPL schemes.

The regulator noted BNPL schemes allow customers to make payments in installments with zero interest but pointed out there may be other charges levied on the customers (e.g. processing fees and late payment fees).

“In some cases, the total charges levied by BNPL providers on the customers may be higher than the total interest and charges imposed by conventional lenders,” the central bank said.

BNPL schemes have started to gain traction in Singapore, Malaysia, and Indonesia since last year as more BNPL startups and tech giants such as ride-hailing and FinTech unicorn Grab and e-commerce platform Shopee offering the service, following similar trends in UK, Europe and Australia. Traditional payment giants such as Visa and Mastercard are also offering similar options, as more consumers see BNPL as a way to stretch their budgets.

The scheme, however, has stirred concerns among regulators that it could cause youngsters, who are often seen as financially naive, to overspend and be lured into debt traps.

In October last year, Bank Negara said it is working with relevant authorities and others to address growing concerns related to BNPL schemes.

Elsewhere in neighboring Singapore, the Monetary Authority of Singapore (MAS) is assessing if a regulatory framework is needed to guide such payment services as they become more widely used, according to a report last October.

The global BNPL market is on a rapid uptrend and is projected to surge 400 percent to $352 billion by 2025 from $89 billion in 2020.

The BNPL sector is estimated to process $680 billion worth of transactions in 2025, translating to a compound annual growth rate of 13.23 percent, according to research data analyzed and published by online trading portal Comprar Acciones in February.

Featured photo credit: Unsplash

Challenges and opportunities as Buy Now, Pay Later shopping gains traction in Malaysia