MAS to examine buy now pay later schemes for stricter regulation amid concerns over consumer debt

Amidst the popularity of buy now pay later (BNPL) solutions, the Monetary Authority of Singapore (MAS) has raised growing concerns over consumers drowning in unseen debt.

Urging the government to ramp up its efforts to regulate BNPL solutions, East Coast SMC MP Cheryl Chan Wei Ling asked the Parliament to detail about the measures being implemented to prevent compulsive buyers from taking on too much debt and whether there are plans to verify the income of those using these platforms for purchases. Additionally, can a centralised system be used to check the advance taken between credit cards and these platforms, she asked.

In response to Wei Ling, MAS senior minister Tharman Shanmugaratnam said that while the regulatory body shares the concern about consumer debt, “BNPL schemes fall outside of MAS’ regulations on credit, which apply to banks and finance companies,” he wrote.

However, MAS and other government agencies are investigating if some form of regulation is necessary for BNPL schemes. “We will examine the adequacy of existing risk management practices and safeguards against people chalking up excessive debts,” Shanmugaratnam said.

Currently, most BNPL schemes are restricted to small-value purchases with the risk of a late fee which is generally capped until the outstandings are paid, Shanmugaratnam said. Existing limits on unsecured consumer credit will cap the spending on BNPL schemes when repayments are made using credit cards. “If a regulatory framework is deemed necessary, it will be proportionate to the risks, and ensure that any potential convenience afforded by these BNPL schemes are not unduly curtailed,” he added.

Urging customers to be less reckless and spontaneous when spending money, Shanmugaratnam added, “Consumers should be mindful that late fees or charges will apply for missed re-payments.”

Alongside stricter investigation, MAS will work with the media to highlight the pitfalls of taking on excessive credit to make consumers more aware of the potential consequences of a BNPL scheme, MAS said.

The ongoing boom in the BNPL solutions has prompted authorities to look into the largely unregulated sector with increased scrutiny.

Popularised by Swedish startup Klarna, BNPL schemes offer flexible payment plans to its consumers allowing them to spread out their payments into several instalments over an extended period of time.

This trend seems to be gaining much popularity as the global BNPL market is projected to expand from $7.3bn in 2019 to circa $33.6bn in 2027 according to a report from Coherent Market Insights.

The rise in BNPL solutions came after the Covid-19 pandemic where customers could purchase without the pressure of immediate payment.

MAS is not alone in raising concern towards BNPL solutions. The UK’s Financial Conduct Authority (FCA) stated that BNPL solutions will be covered by stricter rules as billions of pounds were being lent in unregulated transactions.

Additionally, Australian Securities and Investments Commission (ASIC) who serves as the corporate watchdog also raised concerns over the BNPL solutions as one in five consumers were reported to have missed payments and were facing financial distress. ASIC said that consumers were making do without essentials or have resorted to taking out additional loans to cope with the BNPL payments.

The issue highlighted by most regulators is that most consumers do not realise that they would be subject to late payment fees, unknowingly raking up debt.

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