New-age consumers, especially millennials, increasingly want simpler mobile-based financing solutions that are easy and hassle-free. These consumers do not want complicated interest charges or associated fees.

Recently there has been a revival of point-of-sales (POS) loans, which has driven the success of a clutch of startups offering Buy Now Pay Later (BNPL) solutions.

If you have done any online shopping in the last few months, as many consumers around the world have during COVID-19, you have probably seen several interest-free instalment payments offers depending on where in the world you are located.

POS loans have become increasingly popular worldwide thanks to a demographic of young, urban, cash-strapped millennials, most of whom don’t have credit cards. Although the concept of instalment loans is not new, for these millennials who are entering a stage of life where big-ticket purchases are becoming more relevant, many are choosing to borrow at the checkout counter.

New face of commerce

No alt text provided for this imageFrom Klarna (in Europe) that has doubled its valuation to over US$10 billion; Affirm in the US that’s rumoured to be nearing an IPO; to AfterPay, the Australian competitor that’s seen its stock increase 800 per cent this yearOriente in Southeast Asia, that serves over seven million customers and counts Wix Capital as an investor; to even digital payments behemoth PayPal, that last week announced it was throwing its hat into the mix with the launch of “Pay in 4” its new BNPL (buy now, pay later) product that provides an interest-free, equal instalment plan (initially available in the US only).

These companies are reshaping the commerce and payments landscape by allowing consumers to conveniently finance their purchases and make incremental payments over a designated period.

Klarna, the Swedish pioneer in this space, and last week announced a mammoth US$650 million fundraise has seen its US customer-base grow 600 per cent in the first half of 2020 and now serves over 90 million customers globally.

Sebastian Siemiatkowski, co-founder and CEO of Klarna, said, “We are at a true inflexion point in both retail and finance. The shift to online retail is now truly supercharged and there is a very tangible change in the behaviour of consumers who are now actively seeking services which offer convenience, flexibility and control in how they pay and overall superior shopping experience.”

Not surprisingly, over a third of US consumers have already used a BNPL service, according to this recent study by Ascent. A separate report from reveals that 87 per cent of consumers aged 22 to 44 are interested in monthly instalment plans similar to BNPL services.

As consumer spending shifts from offline to online, BNPL adoption has also spiked for smaller items and amongst merchants, fintech, and traditional financial services and payments companies.

Banking meets fintech

Some major banks are also getting into the BNPL business. Goldman Sachs recently launched a point-of-sale (POS) deferred payment plan called MarcusPay that allows customers to break payments into monthly instalments over 12 to 18 months.

This system is different from other BNPL apps in that it charges interest, but like its competitors, it does not carry additional fees. Last week, Microsoft announced it would let consumers finance the new US$499 Xbox in monthly payments through a partnership with Klarna in the UK and Citizens Bank in the US.

This trend is starting to gain momentum in emerging Asia, where an upwardly mobile population holds vast potential for retailers. Seventy per cent of the people in Southeast Asia – a region of more than 650 million people – are still unbanked and don’t have credit scores, credit cards, bank accounts, or access to credit.No alt text provided for this image

They are, therefore, unable to purchase big-ticket items or shop online easily – sometimes even living on unrealistically tight budgets until they receive their monthly paycheques. The opportunity for BNPL is, therefore, significant.

New-age consumers, especially millennials, increasingly want simpler mobile-based financing solutions that are easy and hassle-free. These consumers do not want complicated interest charges or associated fees.

The chance to split up payments for a new pair of shoes or a kitchen appliance instead of paying the full amount upfront is appealing to many consumers, especially the younger generation who don’t tend to use credit cards and may find them intimidating.

Embraced by youth

 BNPL solutions such as Cashalo, Hoolah, Finmas, and others can be accessed by consumers anytime and anywhere from the comfort and safety of their mobile devices. By establishing a completely digitalised application process, there is no cumbersome paperwork involved, and consumers can use their credit immediately across a nationwide network of retail merchant partners.

In emerging markets such as Indonesia and the Philippines, it’s not even a question of whether these consumers have good or bad credit. Unfortunately, people in these markets have no credit.

Consumers, especially underserved and underbanked consumers, are simply looking for simple, honest, financial services that provide them with the flexibility they need. We’re excited to be able to shape this new payment category for consumers in a meaningful way.

There is growing consumer hunger, particularly among younger consumers, for transparency and control of their credit products. Not only that, but easy-to-understand solutions will also result in faster adoption because of the enormous credit and financial literacy gap.

No alt text provided for this imageFor consumers that are less financially literate, an accessible, transparent, and simple solution becomes invaluable because they appreciate the predictability of these ‘instalment’ payments and knowing exactly when they will end.

CB Insights recently recognised Oriente, among the 110+ Start-up Transforming fintech in Southeast Asia, for its innovative POS lending solutions built around a strong social purpose. The company’s fintech platforms enable millions of credit-invisible consumers to establish a financial identity, take control of their financial future, improve their economic well-being, and build a credit profile.

It’s also important to remember that BNPL solutions benefit merchants too. These digital tools help broaden the consumer base for merchants of all sizes by offering risk-free payment alternatives and customer insights.

Data provided by Oriente-owned Cashalo indicates that its BNPL solution has increased sales for its merchant partners by over 20 per cent on average and become the second most used payment channel after cash, overtaking credit/debit cards in less than 18 months.

“In today’s challenging retail and economic environment, merchants are looking for trusted ways to help drive average order values and conversion, without taking on additional costs. At the same time, consumers are looking for more flexible and responsible ways to pay, especially online,” said Doug Bland, SVP, Global Credit at PayPal, in a statement about the launch of its Pay in 4 product.No alt text provided for this image

In July, Shopify partnered exclusively with Affirm to offer a BNPL option to Shopify merchant customers in the US. Last week, the company announced a similar partnership with Tendopay, a little-known company in the Philippines, as it looks to grow in one of the hottest markets in the region.

Consumers expect and want a seamless commerce experience, so expectedly the number of players leveraging and adopting BNPL solutions is increasing. It is encouraging to see the continued innovation and collaboration between established financial services companies, fintech, retail, and e-commerce driving this transformation.

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Southeast Asia, home to millions of young, tech-savvy consumers is at the cusp of a digital payment revolution. According to the 2019 e-Conomy SEA report, digital payments will exceed US$1 trillion in transaction value by 2025, and digital lending will be the largest revenue contributor led by innovations in consumer lending and working capital financing for SMEs.

The proliferation of “buy now, pay later” is fast becoming just the unexpected catalyst this movement needs.



This opinion was first published on on 24 September 2020 – Buy now, pay later: the changing face of finance for a mobile generation and has been shared here with permission.