Staff reporter
The buy now, pay later market is now taking off in China among users on Alipay and WeChat amid worries that the new fintech trend is making consumers live beyond their means.
Buy now, pay later, or BPNL, is an interest-free installment payment method. What makes it attractive is that it requires the bare minimum of application procedures - a simple registration with a phone number - to enjoy the convenience similar to using a credit card.
Service providers can either earn from late payment fees - what consumers are charged if they don't pay up within the time frame - or from commissions on each transaction on e-commerce platforms.
As not everyone has access to credit cards, BNPL has become a popular alternative for students, people without regular incomes or workers whose salaries are paid in cash.
The Chinese BNPL sector is one of the fastest growing markets in Asia-Pacific region, according research and consulting firm PayNXT360, which says BNPL payment in the mainland is expected to grow by 51.3 percent on an annual basis, and could reach US$82.78 billion (HK$645.68 billion) in 2021.
Boh Wai Fong, deputy dean of Nanyang Business School at Nanyang Technological University in Singapore, told CNBC that China's cashless society, huge e-commerce market and mobile and online shopping have become a ubiquitous to life in the mainland, adding that the "seamless integration" of BNPL payments with e-commerce platforms has encouraged more purchase decisions to be made.
He said that the growth in BNPL in the mainland is "inevitable," and that unlike other markets, the e-commerce and mobile payments industries in China are already "very stable" and are dominated by several big players like Alibaba and Tencent.
Meanwhile, PayPal, which made its entry into the increasingly competitive lending niche market in August last year, said volumes on its Buy in 4 service - which allows users to pay purshases in four installments - was up almost 400 percent year-on-year during Black Friday sales in the US last month.
Chief executive Dan Schulman revealed the company handled about 750,000 transactions alone in one day.
By the end of last month, PayPal's BPNL service had over 10 million users, of which some 1 million had joined in November alone, and these users generated transactions worth US$1 billion last month.
Online shopping has soared amid the coronavirus pandemic and led to exponential growth in the BNPL sector across the world.
It's no wonder why digital payment giants are homing in on this fast-growing market.
In early August, Nasdaq-listed digital payments firm Square announced its acquisition of Australia's BNPL pioneer Afterpay for US$29 billion, the biggest deal in Australian corporate trade history. This was followed by PayPal's US$2.7 billion deal for Japanese BNPL firm Paidy a month later.
However, BNPL also has its risks. It encourages impulsive purchases and may encourage people to live beyond their means. For instance, late payment fees for BNPL services are usually lower than the interest on credit cards and some service providers such as Affirm will only freeze a user's account and suspend their access to BNPL shopping if they don't pay the installments.
