Mr Wong Nai Seng, regulatory strategy leader at Deloitte Southeast Asia, noted that even with the cap on outstanding payments, it is still possible for consumers to “borrow” S$2,000 from each BNPL provider without going through any credit checks, and end up with “substantial” debts.
To prevent this risk, the industry can consider setting different spending limits for customers.
“The limit can be based on the credit information sharing arrangements that BNPL providers have committed to and vary depending on each customer’s income,” said Mr Wong.
“For example, customers with no or low income, (such as) students, should have lower spending limits.”
The Singapore FinTech Association, in response to CNA’s queries, said the S$2,000 cap aims to prevent BNPL customers from “overburdening their financial positions” and was determined based on industry data and feedback.
It did not reply to questions about how many BNPL users have exceeded this limit and subsequently defaulted on repayments.
On whether it would consider more safeguards, the association’s president Shadab Taiyabi said the working group had engaged with various stakeholders in developing the code of conduct.
“Going forward, we will continue to engage different stakeholders to receive their feedback and to continue the discussion on how the code can further protect consumers’ interest.”
WILL BNPL HURT ONE’S CREDIT RATING?
As part of the code of conduct, the BNPL industry will also be setting up a credit information-sharing bureau by late 2023, with the help of credit data firm Experian.
This will allow BNPL providers to share with one another information on customers’ outstanding amounts and delinquency status – a move welcomed by experts.
While the code specifies that information will be shared only for the purpose of providing BNPL services, experts do not rule out the possibility of BNPL data being shared with other entities, such as credit agencies and banks, eventually.
“Ideally, BNPL credit information should be aggregated with credit records maintained by the credit bureaus for banks and moneylenders to provide a holistic view of each individual’s credit situation,” said Mr Wong.
“A lender can then decide whether to extend credit based on a more complete record of each potential customer’s credit history and their risk appetite. This will also create stronger incentives for individuals to manage their borrowing prudently.”
Echoing that, Mr Ruddenklau said data from the BNPL credit information sharing bureau would likely eventually “be commingled with other lending products”.
This “logical conclusion” means potential impact on one’s credit scoring.
“If we are missing payments on a habitual basis, lenders don’t like that because it sounds like bad credit risk. So we need to take care of the small things to look out for the bigger things – in this case, a mortgage or a loan for health treatments,” he said.
Nonetheless, experts stressed that while safeguards are important, the onus still lies on consumers to manage their own spending.
“Could we make the cap for those between 18 to 20 years old at S$500? Possibly,” said Mr Ruddenklau.
“But I don’t think that’s going to solve the underlying issue which is understanding the value of money, people being accountable for themselves … and learning how to live within your means.”