Malaysian Central Bank said Wednesday that buy-now-pay-later (BNPL) schemes grew at a more moderate pace in 2022 amid tapering customer demand.

According to Bank Negara Malaysia (BNM) Financial Stability Review 2022 report, the schemes continue to target selected segments of Malaysian households with the majority of users being younger and lower-income borrowers.

The report highlighted that about 44 percent of BNPL users are aged between 18 and 30 years old.

Meanwhile, more than 80 percent of BNPL users earn less than MYR3,000 ($678) a month, and therefore, are more susceptible to financial stress.

BNM also noted 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, BNM said users may also be unaware of the total amount that they must repay.

According to BNM, anecdotal evidence among selected larger BNPL players point to an increasing trend in missed repayments, suggesting that such risks may be rising, with share of BNPL users with overdue payments rose to 17 percent in the fourth quarter of 2022 from 7 percent a year ago.

BNM said that financial stability risks associated with BNPL schemes remained limited as BNPL exposures accounted for only 0.05 percent of total household debt.

Nevertheless, the bank is cognisant of the conduct risks that BNPL poses to consumers and has taken steps to mitigate this for BNPL schemes offered by entities that are regulated by the Bank.

This includes requiring licensed financial institutions (banks, prescribed development finance institutions [DFIs]) and approved e-money issuers to adhere to existing responsible lending standards for BNPL schemes offered.

They are also required to conduct more holistic suitability and affordability assessments at the point of onboarding new customers that take into account the customer’s exposures/borrowings with other lenders, BNM added.

BNM noted that the bank will also impose additional measures to improve disclosures of all applicable fees and charges to BNPL users, as well as any applicable terms and conditions at the point of onboarding.

Further, consistent with principles on the fair treatment of financial consumers issued by the bank, it said licensed financial institutions and approved e-money issuers will be required to demonstrate that the imposition of late payment charges on consumers who missed scheduled repayments are not excessive.

In parallel, it said the Ministry of Finance, the Bank and the Securities Commission Malaysia remain committed to expediting the tabling of the proposed Consumer Credit Act (CCA).

Once enacted, it said 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, it said 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.

These efforts will also help to mitigate risks from over-indebtedness building up among younger and lower-income borrowers.

Bank Negara Malaysia working with ‘relevant authorities’ to address concerns over BNPL