‘Buy now, pay later’ services may trap young Malaysians in debt: Experts

Like many young Malaysians, Danial Syarqawi likes to buy things online.

It’s easy to make online purchases these days, he says, with the help of popular apps that use the “buy now, pay later” (BNPL) feature.

The financing option lets buyers split the cost of a purchase into smaller installments – often free of interest – that are paid over time.

“It’s convenient. I can get what I need without paying everything upfront,” said Danial, a 25-year-old private employee earning 2,900 ringgit (U.S. $646) monthly.

Young Malaysians are flocking to BNPL services because of the appeal of interest-free installments, easy transactions, and the immediate gratification they can get from online shopping. 

But such access to easy money to buy goods may expose them to huge debt, financial experts said.

Growing e-commerce market

BNPL services started gaining traction in Malaysia in 2019, with platforms such as Atome, Grab PayLater, and Shopee PayLater joining the burgeoning e-commerce market.

In 2023, there were 77.3 million BNPL transactions worth 6.2 billion ringgit ($1.38 billion), according to the Consumer Credit Oversight Board Task Force, a government agency. 

For the past 12 months, the agency also noted a growing number of transactions, although figures for the period were not yet released.

There are 2.9 million active BNPL users in the country, the agency reported. 

Many active users are young working adults, with 44% aged between 21 and 30 years old. People whose ages range from 31 to 45 years old comprise 47%.

It’s not surprising that the services are popular among young, tech-savvy users: They’re readily accessible, easy to use, and payment installments are often interest-free.

On the other hand, credit cards charge extra fees and require a more rigorous application process. Applicants need to submit various documents, such as pay slips and income tax statements, and the approval process can take days or even weeks.

It’s no wonder that for many young people like Danial, BNPL services provide a reliable and quick financial lifeline. 

But with the easy money BNPL services offer, Danial said he had trouble paying installments on time.

“I’ve missed repayments twice due to financial issues,” Danial told BenarNews.

Danial, who purchased electronic items and household items online, currently owes 500 to 800 ringgit ($111-178) from the BNPL services he used.

He also had no choice but to pay penalties for the delayed payments, which typically range between 10 and 50 ringgit ($2 and $11) per installment. 

Most repayment periods BNPL services offer range up to a year.

“They’ll call to remind me about the payments and fees,” he said. 

And it’s not just Danial.

Rising debt

As of October last year, some 53,000 Malaysians under the age of 30 were drowning in debt worth nearly 1.9 billion ringgit (U.S. 423.51 million), according to the state-owned Credit Counselling and Debt Management Agency.

The debt is partly due to the growing reliance of young people on BNPL services as well as credit cards and personal loans, the agency said. 

Amid the rising debt of young Malaysians, Bank Negara Malaysia – the country’s central bank – last month proposed to the government stricter rules requiring lenders and BNPL providers to evaluate a borrower’s ability to pay before they approve loans to “curb potential debt risks.”

Unlike banks, BNPLs are not regulated in Malaysia.

BNPL providers did not respond to BenarNews requests seeking comment on this issue. 

‘Allure’ of easy money

Doris Liew, an economist with the Institute for Democracy and Economic Affairs, attributed the surge in BNPL use among young Malaysians to rising living costs and stagnant wages. 

“The allure of BNPL is particularly strong among youth, who may use these schemes to finance big-ticket items such as the latest smartphones or laptops – purchases that may otherwise be beyond their immediate means,” she told BenarNews. 

But unlike traditional credit systems that are under scrutiny of regulatory agencies, BNPL operates in a largely unregulated space, Liew said. 

“Many of these schemes offer enticing deals and easy credit access to new users, luring them in with the promise of simple, interest-free installments, although often with hidden costs that many users are unaware of,” she said.

This was especially true for Alif Rizal, a 23-year-old marketing specialist, who uses BNPL services for his online purchases, which usually include electronic items, clothing, and room decorations. 

“I only found out about the hidden [interest fees] after the 13th time using the services,” Alif said. 

Alif borrows between 400 and 800 ringgit ($89-$178) from BNPL services. But for purchases below 500 ringgit ($111), Alif said he preferred making lump-sum payments instead of tapping BNPL platforms to avoid incurring additional fees.

The trend of many young people having debt could worsen in the months to come, another economist told BenarNews.

“With household debt already at alarming levels, more borrowing increases the risk of financial instability when the next economic downturn hits,” said Carmelo Ferlito, CEO of the Center for Market Education.

“I believe Bank Negara was right to urge BNPL providers to exercise caution when extending their services, particularly to individuals at high financial risk.”

Benefits of BNPL services 

For another economist, BNPL services do offer benefits to consumers but the industry needs to be effectively regulated and there should be stronger financial literacy among its users.

“If properly regulated, BNPL could offer a positive alternative to expensive credit cards or unregulated loan sharks,” said Geoffrey Williams, director of Williams Business Consultancy.

“There must be a clear legal framework to protect both creditors and lenders. Unregistered or unregulated providers should have no place in any BNPL system,” he said.

Malaysia is currently working on new legislation to regulate BNPL services. 

The government hopes the proposed commission to regulate BNPL companies and other credit service providers will start operating this year.

For now, Danial tries to be prudent with his BNPL transactions.

“BNPL [services] could be useful if used properly. If you don’t have self-control and spend more than you can pay monthly, they could be a burden.”