After the pandemic has accelerated consumer adoption of cashless services, new data suggests that Buy Now Pay Later (BNPL) services will grow in size in the Philippines by 2026 or barely four years from now.
In their research, UnaCash, a financial mobile app, projects that BNPL transaction volume in the country’s e-commerce ecosystem could hit $2.5 billion by 2026 (a growth of 568% ). Data provided by the company also showed that transaction volumes in 2021 only amounted to about $400 million.
“The BNPL model is very promising and has unlimited potential. It helps stimulate immediate purchases, thereby increasing both short-term and long-term company earnings,” said UnaCash in its report. BNPL is a type of financing, similar to short-term loans, which allows consumers to make purchases and pay at a later date.
UnaCash also attributed the sector’s growth prospects to several factors, including the country’s young population, swift adoption of technology by consumers, and government support for digital businesses.
BNPL to promote financial inclusion, help ‘bank the unbanked‘
According to Lotte Schou-Zibell, advisor at the South Asia Department at Asian Development Bank (ADB), the payment process that grew in popularity amid a shift to online purchases during the pandemic is now being seen in a new light: as a way to bring millions of people around the globe into the financial system.
“This popular instant credit system (BNPL) can be a powerful tool to help Asia’s unbanked establish credit, open bank accounts, and otherwise reap the benefits of the formal financial system,” she said in her blog post.
Through the BNPL service, Filipino consumers are given the opportunity to buy items they can receive immediately simply by making a small downpayment and paying for the rest of the amount in usually interest-free installments.
If properly managed and targeted, BNPL could also be used as a tool to help increase financial inclusion in developing countries such as the Philippines as it provides a credit option for many, particularly people with limited or no access to financial services or who lack credit history.
The Asian Development Bank (ADB) is a regional development bank established in 1966. It was modeled closely after the World Bank but with the aim of promoting social and economic development in Asia.
BNPL to create more opportunities with quick approval process
With BNPL, the lack of credit history or an individual having a poor one will no longer be a barrier for those who want to access financial services despite having limited credit checks conducted on them.
“Approval criteria may vary, but more people are eligible for buy now, pay later than traditional loans and credit cards,” Lotte said. “Buy now, pay later providers can lend small amounts and build up based on the repayments and history they create with their consumers. And the approval process is quick, which makes it more attractive to those unfamiliar with formal banking processes.”
In addition, the scheme can help create financial inclusion opportunities by making access to e-commerce easier for those who currently do not have a digital account or e-wallet while making it easier for them to make large purchases.
BNPL to encourage responsible lending
BNPL apps can eventually be used as a platform for financial education by encouraging consumers to practice responsible lending.
“If the BNPL provider reports to credit bureaus, the credit history established through the scheme could open access to other financial products and services,” the ADB advisor explained. “If managed correctly, buy now, pay later can disrupt the traditional credit industry and bring more people into the financial system. This is particularly so in most developing countries, where credit card penetration is minimal.”
While concerns about consumer protection and indebtedness still exist, Lotte said what needs to be done is to strike a balance between risk and reach. Apart from enabling innovation, the BNPL scheme should also ensure stability, protect consumers, and foster competition.
The focus on financial inclusion, according to Lotte, should be in the design, marketing, and distribution of buy now, pay later products or services.
“Governments should enable existing buy now, pay later providers, and allow more new entrants, with a focus on the situation of low-income earners and those without access to existing credit services. There are risks to the use of buy now, pay later credit in developing countries, but with the right regulatory framework and a focus on financial inclusion, this can be a game-changer for poor communities over the long term,” she said.