By Khangal Nergui
Installment payment options present a practical way in which to purchase goods and services. More and more Singaporeans are discovering how beneficial they can be when compared to more traditional payment methods such as cash, credit, and debit cards.
Buy now, pay later (BNPL) is a relatively new payment method that allows customers to buy services and products with the added bonus of not having to make the full payment immediately.
I feel BNPL is an attractive option for consumers as it doesn’t involve charging fees or interest on the loan amount and is generally easier to get approved for when compared to personal loans and credit cards. It also does not affect a user’s credit score.
This can provide new opportunities for lower-income households to avail of products and services they may otherwise not have been able to afford. A fixed payment schedule is put in place after the initial down payment is made so a household knows exactly how much is due and when.
This is why I believe BNPL is more inclusive than traditional payment methods. It can give access to more people who may not have a credit score and who would otherwise be excluded from traditional banking.
When discussing alternative payment options such as BNPL, I feel it’s important to first look at Singapore’s economy in a little more detail. According to the Singapore Department of Statistics and the country’s Ministry of Trade and Industry, Singapore’s GDP (Gross Domestic Product) only grew by 0.1 per cent on a year-on-year basis in the first quarter of 2023.
It should be noted that this is an advance estimate and is based on data mostly from January and February 2023 rather than the full quarter. The 0.1 per cent growth figure is significantly slower than the 2.1 per cent growth recorded in the previous quarter.
On a quarter-on-quarter seasonally-adjusted basis, Singapore’s economy actually decreased by 0.7 per cent, a reversal from the 0.1 per cent growth in the fourth quarter of last year.
Although BNPL payments are new they are rapidly growing in the country, credit cards are still the most preferred payment method in Singapore. In fact, they are forecast to increase by 20.6 per cent annually to reach US$1,270.4 million this year.
At the same time, BNPL payment adoption in Singapore is expected to record a CAGR (Compound Annual Growth Rate) of 11.3 per cent over the next five years. In monetary terms, the BNPL Gross Merchandise Value in the country will increase from US$1,053.3 million in 2022 to US$2,165.7 million by the year 2028.
Credit card debt is a significant issue in Singapore, with many individuals struggling to manage their credit card balances. Banks will raise interest rates to make up for written-off debt if credit cards aren’t paid.
Consumers will have less spending power as the cost of their debt rises, which will almost certainly result in a reduction in spending. This can have lasting, damaging effects on the wider economy. In my opinion, there are a number of reasons why credit card debt is such a problem in the country.
The cost-of-living crisis is very much evident if we observe recent price increases in property rentals and sales. According to real estate statistics released earlier this year by Singapore’s Urban Redevelopment Authority, rentals of private residential properties increased by 7.2 per cent in the first quarter of this year.
This represents a marginal moderation from the 7.4 per cent increase in the previous quarter. However, prices of private residential properties increased by 3.3 per cent in the first quarter of 2023, compared with a 0.4 per cent increase in the previous quarter.
In Budget 2023 the Singaporean government increased its AP (Assurance Package) from S$6.6 billion to S$9.6 billion to help with the rising cost of living due to inflation. This includes one-off cash payments of between S$200 and S$400 for eligible adults in June 2023.
From a business perspective, the BNPL option can be of benefit to smaller companies as it eases consumer purchases leading to business growth and development. This is vital if the economy is to remain healthy. Singapore needs to maintain its position as a global financial hub.
Innovations such as BNPL can aid this by inspiring the evolution of new financial services and products. In addition to this, since retailers are paid in full at the purchase point credit risks are not a worry.
It is also important to keep in mind that to successfully use BNPL, the technological infrastructure in the region in which the business operates also needs to be sufficiently developed to allow for a high smartphone penetration and strong 4G connection.
I feel this doesn’t present a problem for Singapore, which enjoys particularly fast internet connection speeds and was the first country in the world to achieve nationwide 5G coverage. Furthermore, the number of smartphone users, already at one of the highest levels of any country in the world, is expected to rise to over 6.16 million by 2028.
The fact that retail and rental property prices are steadily increasing while BNPL payment adoption is increasing at a rapid rate would seem to suggest that Singaporeans have a particular need for the latter.
I feel having the option to purchase products and services now but to pay for these at a future date that doesn’t clash with rent and/or mortgage repayment dates presents a practical and sensible option.
Khangal Nergui is the founder and CEO of Storepay
