The rapid rise of digital payment methods, especially in developing countries, is reshaping how people conduct transactions and manage their finances. Among these, Buy Now, Pay Later (BNPL) services have become increasingly popular, offered by major merchants like Shopee, Lazada, and SenHeng. According to the Consumer Credit Oversight Board (CCOB), BNPL usage in Malaysia surged by 84.3% year-over-year in the first quarter of 2024, with transactions totalling RM2.3 billion.
While BNPL offers convenience, it also opens the door to impulsive spending, overspending, and potential debt accumulation. The Credit Counselling and Debt Management Agency (AKPK) reports that 53,000 individuals under 30 are struggling with a cumulative debt of RM1.9 billion, indicating that BNPL-related borrowing issues are growing at a similar pace as the industry itself.
This easy access to purchasing power may come at a steep cost. Studies suggest that inexperienced consumers, low digital financial literacy, and certain mental accounting practices contribute to this issue. Mental accounting is when consumers mentally allocate their budgets into subjective “accounts,” which can make digital payments feel like “free money,” leading to more spending. With BNPL, the “pain of paying” is less noticeable than with cash, encouraging consumers to spend more freely.
Consumers often categorize their funds for saving or spending, believing it helps control what they can spend now or later. BNPL, however, can make it easier to justify extra purchases, as it feels less burdensome than cash payments. The convenience of digital transactions, along with tempting sales like “11.11” and “12.12,” can push people to spend beyond their budgets, creating new mental accounts that make these splurges feel more justified. Familiar thoughts arise, like “If I don’t buy it now, I’ll never get this price again,” or “I can handle the monthly instalment,” which often lead to a cycle of impulsive purchases.
BNPL can easily disrupt budgets and lead to mounting debt. Unlike credit cards, which require credit checks and approvals based on credit scores, BNPL is accessible with just a tap, potentially creating unchecked spending power. Many BNPL users take on overlapping debts from multiple providers, contributing to a current unpaid balance of RM0.9 billion (US$665 million).
Recent data shows that BNPL transactions are nearing 100% of the RM500 credit limit for many users. This trend indicates that lower-income groups are increasingly reliant on BNPL for essentials like food, accommodation, and groceries. Without sufficient digital financial literacy or proper credit checks, these consumers may not fully grasp the long-term financial impact of their purchases.
To address this issue, proactive strategies are necessary. Studies show that improving Digital Financial Literacy (DFL) can help consumers make more informed financial choices, particularly around the risks of overspending. Educating consumers to treat digital money as real cash could reduce mental accounting biases. Short videos explaining the risks of late BNPL payments or real-life examples could make these points more relatable, encouraging responsible use of BNPL services.
Using expense-tracking apps specifically for BNPL could also help curb impulsive spending. Many apps, such as Money Lover, Wally, and You-Need-A-Budget (YNAB), allow consumers to monitor their BNPL expenses, track their spending patterns, and receive alerts when they approach certain limits. These tools could help consumers make more informed decisions and reduce impulsive purchases.
Government regulations are also essential. Mandating that BNPL providers report transactions to CTOS Data System Sdn. Bhd. would create a more complete picture of consumers’ payment behaviours, allowing for better risk assessments and decision-making. High default rates could lead to financial losses for BNPL providers by straining their cash flows and profitability. Enforcing these regulations could improve lending practices, benefiting both consumers and providers.
BNPL presents both opportunities and challenges, especially for consumers with low financial literacy and strong mental accounting tendencies. Consumers need to be fully aware of the risks before using BNPL. Remember, BNPL is not “easy money” for quick purchases; without caution, it can lead to unnecessary debt accumulation. Consumers should thoroughly read BNPL terms and conditions to understand the potential risks. Providers, in turn, should practice stricter lending criteria, especially for vulnerable groups.
The government must continuously improve BNPL regulations, ensuring transparency around lending terms, fees, and other conditions to protect consumers from misunderstandings and debt spirals. By doing so, we can sustain a healthy BNPL ecosystem that remains competitive in the global market.
Dr. Ahmad Muhaimin Mat Jusoh is from the Faculty of Education, Universiti Malaya.
