With a market size of approximately $16.1 billion in Southeast Asia (SEA) alone, buy now, pay later (BNPL) has emerged as an accessible tool for expanding purchasing power globally. Spurred by the surge in online shopping during the COVID-19 pandemic, BNPL has ascended at a breakneck speed, capturing the interest (and wallets) of a good number of consumers. It can grant you access to purchases where you can delay payments, offering flexibility and convenience.
While capturing consumer attention, the BNPL phenomenon has also drawn market scrutiny. According to a survey, there is an evident decline in BNPL usage among American adults from 50% in 2022 to 35% in 2023. In Australia, Afterpay saw a noticeable drop in demand, which also led to a decrease in investor backing. In neighboring countries like Malaysia and Singapore, the rewards platform of ShopBack terminated its BNPL services due to thin profit margins. Concerns were raised as the sector relies on retailer commissions, a high risk in covering lending costs, which is seen as financially unsustainable.
In some businesses, BNPL remains a foreign concept. In our own experience, we had untapped potential merchant partners who did not understand the operational aspects of BNPL or point-of-sale (POS) loans. This includes questions around what platform is being used to avail of said services, how return policies work, and whether merchants will be held liable for possible product complaints. And a classic encounter at the end of the discussion would always be: Why is there a need for BNPL services when credit cards are available in the market?
In a world where more people have mobile phones than credit cards, it is becoming more evident that BNPL is definitely here to stay — paving a way forward and not a passing trend.
Southeast Asia remains an emerging hotbed for digital innovation and e-commerce growth. The Philippines is leading the way in BNPL adoption in Southeast Asia, surpassing neighboring countries like Thailand, Singapore, Vietnam, and Malaysia. Internal analysis showed us that BNPL in the Philippines ranks third in penetration rate with 24.7 percent, closely following Vietnam with 24.9 percent, and Singapore with a whopping 75.4 percent. Third, as we may be, BNPL is being positioned as a frontrunner for financial innovation within the region since there are 20.3 million users in the country alone.
Let’s also look into the digitally savvy generation called Generation Z. They are seen to drive Southeast Asia’s evolving e-commerce landscape. Our own projections indicate a staggering 132 percent growth in e-commerce trade volume and the emergence of Gen Z as a dominant force in the market, BNPL services are poised to play an increasingly vital role in shaping the future of retail.
We also have our own estimates that reveal that users of BNPL have steadily grown, making up 19.1 percent of total users of single digital lending applications from 2018 to 2023. With the rising trend of digital payments, digital wallets, and online commerce, this makes BNPL a lucrative segment. Not to mention that there is a recent GMV where there is a significant surge in BNPL GMV in the Philippines by the end of 2024 which contributes at least 6.7 percent to the digital economy.
There is an anticipation that BNPL services integrated within electronic wallet ecosystems will increasingly emerge within the digital lending sphere in the future. As for cases where potential merchants were not as privy to how BNPL works, this is an opportunity to further mainstream the concept.
As the saying goes, with great power comes great responsibility. BNPL offers short-term benefits like interest-free payments and a more straightforward application process. If not managed properly, like any other financial service, it may lead to impulsive spending and unsustainable financial challenges. Individuals may also overlook the repayment terms and accumulate debt beyond their respective means. Without a conclusive measure in place, it remains uncertain when the “phantom debt” could potentially pose significant challenges for both consumers and the wider economy.
This highlights a bigger challenge in the industry to address the need for comprehensive borrower education and responsible product design to avoid or at the very least, manage above mentioned risks. It is crucial to prioritize responsible digital shopping practices and cybersecurity awareness to avoid these issues, and how BNPL will promote financial inclusion in the Philippines.
There is a firm dedication that BNPL will co-exist with other financial solutions in the market. There should be a thoughtful approach that recognizes both its advantages and challenges. By encouraging innovation, building consumer confidence, and combating fraud, BNPL can definitely create a stronger, more inclusive financial system.
Sean Plantado is the channel manager of UnaCash, with almost 10 years of experience in the tech and financial services industry. His background includes success in driving growth through high-performing projects focused on merchant acquisition and business development.
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