KUALA LUMPUR: The buy now, pay later (BNPL) scheme is gaining popularity among Malaysians and proving a godsend to shopaholics, who no longer need to go through the pain of saving money to buy their desired items.
However, experts have sounded the alarm over the potential pitfalls of using such facility, which could lead to not only overspending, but also poor financial literacy and discipline in the long run.
Putra Business School lecturer Associate Professor Dr Ahmed Razman Abdul Latif said the easy-to-use BNPL schemes encouraged users to spend more than they earn as it allowed purchases to be split up into three or four payments, and most platforms are offering zero-interest plans as an attraction.
What makes BNPL schemes more attractive, he said, was that under existing arrangements, consumers were not subjected to credit checks before purchases, along with no limit on the purchase amount.
"Retailers are also offering discounts to entice consumers to opt for BNPL facilities rather than paying cash.
"This will encourage consumers to buy, even if they cannot afford the items, on an instalment basis," he told the New Straits Times.
A survey of 10 non-bank BNPL scheme providers found that the market transaction value had skyrocketed to RM1.49 billion last year, from RM55 million in 2020.
Under BNPL schemes, buyers only need to provide their identification and facial recognition for registration purposes, before starting their shopping spree.
Asked if BNPL schemes could be a good thing for consumers, Razman said the onus was on them.
"The main concern is whether consumers are financially literate. BNPL concept may be a good thing if they can manage their finances properly.
"Sometimes, the consumers may think that they can afford to buy now and pay later because the payment is split up to four months, even if they don't need the item.
"Therefore, they keep on taking BNPL debts, causing their monthly commitment to increase. Just imagine, on top of the monthly commitments such as housing loans, personal loans and credit cards, consumers have to pay their BNPL commitments too.
"It can be more than what they earn every month, leading to an increase in their indebtedness and inability to service existing loans."
As such, he said discipline was vital to avoid overspending.
"Uncontrollable spending can trap people in financial difficulties. Buy only the necessities. Always keep track of the expenses and, at the same time, do not forget to save for rainy days."
He said consumers must also read the terms and conditions before taking up a BNPL scheme.
"Right now, BNPL schemes are not properly regulated. The Credit Consumer Act (CCA), which is currently being worked on, will also include the BNPL concept.
"However, it is expected to be tabled in Parliament only in the second quarter of 2023.
"In the meantime, consumers must know their rights. Every BNPL provider has its terms, and the fees will kick in once a payment is delayed."