The “buy now, pay later” (BNPL) scheme has surged in popularity recently, inviting scrutiny on its impact on consumer financial health and debt accumulation. One recommendation by Chakrin Utit, a senior lecturer at Universiti Putra Malaysia, underscores the need to limit BNPL to high-value necessities. These items, often considered investments, include smartphones, personal computers, and home electrical appliances. This recommendation emerges from concerns that BNPL schemes, which do not demand stringent credit checks, are accessible to low-income individuals who risk debt accumulation beyond their means to repay.
The Consumer Credit Oversight Board’s recent data reveals that the average BNPL transaction value among 3.7 million account holders stands at RM84. By the close of the first quarter in 2024, the BNPL industry’s overall credit exposure soared to RM1.42 billion, representing a 34% increase compared to late 2023. Despite accounting for just 0.07% of total household debt, these figures highlight an upward trend that demands regulatory intervention. To mitigate the misuse of BNPL for minor purchases, Chakrin proposes setting a minimum purchase threshold of RM500 to ensure the scheme supports the acquisition of high-value necessities rather than trivial items.
Enhancing Approval Mechanisms and Credit Limits
To curb the potential of BNPL becoming a “debt trap,” Chakrin emphasizes the importance of tightening approval processes. Such measures would ensure that only those capable of repaying their debts can access BNPL services. This approach suggests refining credit limits according to the user’s income level, thereby preventing overspending and curbing financial irresponsibility. Furthermore, Chakrin argues for prohibiting the use of credit cards to settle BNPL debt, thus avoiding the cycle of debt rolling over through credit facilities.
Another crucial aspect of reducing BNPL misuse involves mandating providers to report user credit data to monitoring systems like the Central Credit Reference Information System. This initiative seeks to prevent users from accruing unmanageable debt from various BNPL providers simultaneously. Tighter credit scrutiny coupled with an accurate reporting mechanism could significantly minimize the risks associated with unchecked borrowing and promote financial stability among BNPL users.
The Role of Regulatory Oversight and Transparent Charges
Regulatory bodies must play a crucial role in supervising BNPL schemes to protect consumers from falling into debt traps. Transparent and straightforward charges are essential to prevent hidden fees and to maintain consumer trust. Regulators should enforce clear rules about interest rates and penalties associated with BNPL transactions to ensure that users are fully informed of the costs involved. This approach would help maintain the integrity of the BNPL system and encourage responsible borrowing habits.