Buy-now-pay-later (BNPL) didn’t take off in Singapore quite as quickly as it did elsewhere. The companies allowing people to spread their purchases out over instalments, such as Rely and hoolah, have only been around for a couple of years.
But with the recent economic shock from COVID-19 and a number of retailers leaving or shifting to online, there has been an immediate need for retailers to adopt new strategies. This has included pay later services.
What is it? Where is it?
BNPL can be thought of as a new type of credit. Acting as an intermediary, the BNPL companies allow consumers to make purchases with a retailer and then pay it off in instalments.
There are some differences between these instalment plans, but generally, the purchase is spread evenly across three or four instalments, with the funds being debited from the customer’s account.
The BNPL company assumes the risk of non-payment while the merchant pays a small per-transaction fee to offer the service.
BNPL has taken off around the world. Companies such as Klarna and Afterpay, two of the pioneers of BNPL, can be found in a number of countries across Europe, the UK, Australasia, and the US.
Hesitant market?
In Singapore, access to credit is not an issue. A report from Wordpay found that credit cards account for 56 per cent of e-commerce sales in Singapore. Because of this, merchants were failing to see the value of BNPL. Why add other payment options when Singaporeans seemed so happy to pay with plastic?
Also Read: Buy now, pay later: The changing face of finance for a mobile generation
But markets such as Australia prove that love of plastic doesn’t mean there’s no room for an alternative. According to data from the country’s Reserve Bank, credit card usage was at its peak from 2015 to 2018, where over 15 million credit cards were in circulation. This was also when BNPL players started to gain a stronger foothold.
As the country’s younger generations turn to these new ways to pay, credit cards have dropped to 13.9 million, the lowest point since April 2011. On the other side, BNPL usage is at its highest, with over five million Australians being customers of the two biggest companies, Zip and Afterpay.
What’s happening in Australia is a great reminder that even though there is an existing solution, it doesn’t mean an alternative won’t be embraced.
COVID-19 forces retailers’ hands
The pandemic has had a lasting impact on Singapore, retailers included. The Circuit Breaker, which lasted from April to the start of June, forced the closure of non-essential stores and put in place stay-at-home orders.
The effect on the retail sector was quick. Spending dropped because of the effects of the pandemic on Singaporeans’ own financial situations and there were no tourists to be seen. Retail sales fell nearly 28 per cent in June.
This improved slightly in July where sales were down 8.5 per cent year on year. Some retailers such as BooksActually and Topshop announced their plans to move their operations online.
But it became apparent an online presence wasn’t going to be enough for some retailers. Enter BNPL.
A new solution for an old problem
It wasn’t only retailers that had faced hardship because of the pandemic. Consumers were under stay-at-home orders for months and the threat of infection kept many away from shopping in-person.
Also Read: Buy now, pay later: The changing face of finance for a mobile generation
The economy shrank 2.2 per cent during the first quarter of 2020 and employment also experienced its sharpest drop since the severe acute respiratory syndrome (SARS) outbreak in 2003. Consumers had less money to spend and it wasn’t as easy to spend it.
However, the pandemic did lead shoppers online. A report from Nielsen found that 37 per cent of Singaporean consumers were shopping online more because of the outbreak and three in four planned to keep doing so even after restrictions were lifted.
But old issues kept up for online shopping: abandoned carts. In an interview with The Startup Growth, Stuart Thornton, CEO and co-founder of BNPL hoolah, said this was something companies like his could solve.
“hoolah helps solve this problem for merchants by allowing consumers to increase their personal affordability with a buy now and pay later payment option, enabling interest-free repayment in four equal instalments,” he said.
While it’s good this solution was available to help retailers following COVID-19, it was available before the pandemic. So why wait so long to embrace it? Businesses shouldn’t be afraid to partner with companies or offer new services, especially if it’s proven a success in other markets.
The consumer test
Retail tech solutions are great, but they’re nothing without shoppers’ tick of approval. A new report from Finder shows consumers have done just that.
An estimated 1.1 million people in Singapore have used BNPL, 38 per cent of Finder’s surveyed cohort. Interestingly, men are more likely to use BNPL than women, with 45 per cent of men saying they have used it compared to 32 per cent of women.
While good for retailers, the survey also found 27 per cent of the 1,000+ surveyed had taken a financial hit because of a BNPL service. Nearly one-fifth of those surveyed (17 per cent) made an impulse purchase, while 15 per cent spent more than they would have if they weren’t using BNPL.
These are important concerns to keep in mind for retailers looking to adopt a BNPL solution as well as the BNPL companies themselves that are responsible for their customers.
Buy-now-pay-later is becoming increasingly popular in Singapore, but should it have taken a pandemic to see the new payment option rolled out widely? Consumers have embraced it and it offers a number of benefits to retailers.
However, businesses will need to continue to iterate and adapt this new payment technology as it increases in usage and Singapore adapts to the COVID-19 new normal.
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