BNPL HAS POTENTIAL IN ASEAN, BUT CHALLENGES TO LIMIT GROWTH - MOODY'S

KUALA LUMPUR, Aug 1 (Bernama) -- There is huge potential for companies that provide buy now pay later (BNPL) services in the ASEAN region, but various challenges will hinder the sector’s growth, said Moody’s Investors Service.

It said the BNPL market in ASEAN is still small which gives it ample room for growth, and potential expansion would be driven by the rapid growth in e-commerce as its convenience would lead more shoppers to adopt the service as a payment option.

“BNPL transactions have increased significantly since the coronavirus pandemic started, with restrictions on movement and social interaction pushing consumers to use e-commerce platforms more.

“The use of BNPL services as a payment option for online shopping will increase in tandem, though from a low base, as their benefits appeal to both consumers and merchants,” it said in note today.

According to a projection by Frost & Sullivan, the total value of BNPL transactions in the region will increase to US$28 billion in 2026 from US$8.2 billion in 2022, with the number of active users to rise to 127 million from 37 million.

Additionally, the low rates of banking penetration coupled with young demographics in the region are also favourable for BNPL growth.

“The large pool of consumers with limited access to banking services presents an opportunity for BNPL companies because their services are easy to use.

“Also, large populations of young adults give the BNPL sector ample growth potential because they actively shop online and are the primary users of BNPL services,” Moody’s said.

Nevertheless, it said growth could be limited by several difficulties.

It said BNPL companies are incurring high expenses and investing heavily in technology to achieve fast growth amid intense competition, resulting in hefty losses.

In addition, the tightening of monetary policy globally would result in higher borrowing costs for BNPL companies, it said,

“Rising rates will also erode consumers' repayment capacity, raising already high asset risks for BNPL companies.

“Obtaining funding will become more difficult for BNPL companies as investors become more risk-averse amid declines in valuations of BNPL companies,” it said, citing an increase in regulatory scrutiny could also hinder the sector's growth.

Despite its huge growth potential, BNPL companies in ASEAN would not threaten banks in the region in a significant way because Moody’s did not expect the sector to displace credit cards.

“Some BNPL businesses could expand their offerings to products such as unsecured loans, which can help improve their profitability, but even if they do, their small scale would limit their abilities to take on banks,” it said.

It expects the adoption rates for BNPL in ASEAN would remain low compared to those for credit cards or e-wallets.

-- BERNAMA