The COVID-19 pandemic has undoubtedly changed consumers’ behaviour, reshaping the retail sector globally. With newfound financial uncertainty and Southeast Asia’s existing restrictions, consumers are more cautious than ever regarding their expenses, even with ‘goods delivered to their doorstep’. 

Moreover, out of the over 670 million people in the region, only 27% of the population have bank accounts. This sizable gap in banking penetration results in approximately 438 million unbanked individuals, with no bank account, credit or debit card or access to lines of credit. 

Many companies involved in the fintech in Southeast Asia sector are working to alleviate this and have seized this opportunity to implement buy-now-pay-later (BNPL) solutions, thus replacing traditional financing options with more convenient, alternative payment methods. An enormous increase in tech innovation is rapidly shifting the region’s banking landscape, affecting both offline purchases and eCommerce.

The BNPL business model

The concept of buy-now-pay-later is based on good repayment behaviour, in exchange for affordable purchases, through flexible payment plans. These services are generally easily accessible via mobile applications, used at the point of sale (POS) to split a payment into 3-4 monthly, interest-free instalments (when paid on time), track purchases and manage bills. Compared to traditional lump-sum payment requirements, this is an incredibly relieving option for Millennial and Generation Z credit-starved consumers, particularly for big-ticket purchases. This demographic seeks flexibility, convenience, control over payments and overall superior shopping experience.

The business model is not new, but it is rapidly spreading in various industries. Flexible options from ‘buy now, stay later‘ hotelier packages supporting Asian tourism, to car manufacturers’ deferred payment plans for boosting car sales, all the way to ‘fly now, pay later‘ air travel are increasingly popular.

International growth

woman holding card while operating silver laptop

The BNPL model has been successfully tested in the retail sector, serving as a balancing link between the buyer’s and the retailer’s needs. Pioneering companies, such as Klarna, Afterpay and Sezzle across Europe, Australia and the US respectively, have recently witnessed accelerated market size growth. The market value of such platforms is likely to rise globally at a CAGR (Compound Annual Growth Rate) of 21.2% by 2027. 

PayPal introduced its new ‘Pay in 4′ BNPL product to the US market, and even traditional banks like Goldman Sachs are joining. The latter recently launched their MarcusPay deferred payment plan and—along with Oaktree Capital—granted a credit facility of $200 million USD to QuadPay, a US-based payment instalment platform.

BNPL in Southeast Asia

Ed Chin, co-founder and CEO of Singapore-based fintech startup OctiFi, wants to make BNPL services the cornerstone of how merchants conduct business by providing SMEs with a digital financing platform for new generation consumers. The app enables consumers to access fast, interest-free credit solutions, easing the online or in-store buying decision process and gaining traction for retailers. Additional features like ‘early payment cashback’, vouchers and competitions, make it even more appealing.

Singapore-based hoolah’s new BNPL mobile app offers consumers a shopping range of almost 1,000 participating retail brands. While online lending firm Cashalo recently received funding of $20 million USD through its Hong Kong-based parent firm Oriente and is expanding in the Philippines BNPL market, taking on local competitors BillEase and Manila-based Jungle and TendoPay in this growing sector.

When granting credit, Cashalo uses filters to find spending patterns while BillEase asks for official payslips and latest bill statements. To assess the applicant’s capacity for loan repayment, official ID, phone model, and other personal data can also be requested.

Indonesian P2P lending firm Finmas, a joint fintech venture of Oriente and local conglomerate Sinar-Mas, is one of 13 out of 127 fintech lenders registered, fully licensed by the country’s Financial Services Authority (OJK). Oriente’s co-founder Geoffrey Prentice, also a co-founder of Skype, feels the mutual efforts of Finmas and the Indonesian government will improve financial literacy and inclusiveness in the country. 

Oriente’s new product Finizi recently entered Vietnam’s market, offering businesses access to various credit products. Fintech startups Grab and Split offer BNPL services to the Singaporean and Malaysian markets. Split received an undisclosed amount in funding from 500 Startups in recent months and welcomed Louise Daley, deputy CEO of AccorHotels Asia Pacific, to its board of directors.

Splitit, a leading global BNPL solutions provider, has formed a partnership with top ASEAN merchant acquirer GHL, offering its instalment plan to more than 2,000 online merchants in Malaysia, Thailand, Indonesia and the Philippines. 

Buy-now-pay-later options are changing the financing sector as we know it. Future scenarios suggest the potential end of credit cards and fintech’s key role in creating a more inclusive banking ecosystem. This will increase ASEAN’s economic contribution to the sector from $17 billion to $52 billion by 2030. 

Although fundamental consumer behaviour changes are necessary for fintech in Southeast Asia to reach full potential, making digital financial services accessible for all can lead to a $60 billion revenue by 2025 and expose the previously unbanked to a plethora of promising opportunities.