ALTHOUGH Buy Now, Pay Later (BNPL) schemes are reshaping consumer spending, particularly among young Malaysians and lower-income groups, financial experts have expressed growing concerns over the risks these schemes pose to the financial health of the younger generation.
According to Malaysian Financial Planning Council (MFPC) President Andy Ng Yen Heng, it is undeniable that the BNPL has gained popularity due to its flexibility and accessibility.
He explained that in terms of flexibility, the scheme allows consumers to make purchases immediately and spread the cost over time without incurring interest if payments are made on time, which helps in managing cash flow.
Accessibility, he added, offers an alternative for those who may not qualify for traditional credit services like credit cards or bank loans.
“While BNPL offers these benefits, there are concerns about its long-term financial impact. First, it can lead to unmanageable debt accumulation due to impulsive spending.
“Many consumers may not fully understand the implications of late payment fees or how missed payments affect their credit scores. Additionally, essential financial goals such as mortgage payments, retirement savings, or long-term investment planning may be deprioritised due to difficulties in setting aside funds for savings or other financial priorities.
“Finally, BNPL schemes often operate in a less regulated environment compared to traditional credit products, raising concerns about responsible lending practices and consumer protection, especially for vulnerable individuals,” he told Sarawak Tribune.
The Role of Financial Literacy
To address these risks, Ng suggested initiatives to enhance financial literacy among young Malaysians.
He emphasised budgeting and debt management awareness where consumers need to set monthly spending limits for non-essential purchases, including BNPL transactions, and use budgeting apps or tools to monitor their outstanding BNPL debts.
“Keep a clear record of all BNPL debts to avoid accumulating multiple small debts across different platforms.
“Other than that, consumers need to prioritise ‘need vs wants’ by limiting BNPL usage to essential items, such as emergency household items or planned larger purchases, rather than impulsive buys,” he said.
He also suggested delaying purchases by following a 24-hour rule to prevent impulsive BNPL transactions and recommended that consumers limit the number of BNPL platforms they use to reduce the temptation to overspend and make it easier to track their obligations.
“Consumers also need to avoid saving BNPL payment information in their online shopping accounts. The extra step of entering details manually allows more time to reconsider purchases.
“In addition to this, always read and understand the terms, including late fees, interest rates, and other penalties associated with BNPL services. Knowing the true cost of missing payments can help curb impulsive spending,” he said.
Balancing Accessibility and Financial Responsibility
Ng believes a balanced approach is key, rather than imposing stricter credit checks on consumers.
He suggested focusing on education, transparency, and affordability assessments to ensure consumers can access BNPL schemes while minimising financial risks and promoting industry growth.
He emphasised that financial literacy is key to responsible BNPL use, especially among younger consumers.
“Educating consumers on responsible credit usage, understanding fees, payment terms, and the risks of delayed payments can help them make informed decisions,” he said.
To support this balanced approach, he also suggested that BNPL providers promote ethical lending practices.
“These include conducting affordability checks, setting transaction caps, and ensuring clear communication about fees, penalties, and interest rates.
“Other than that, providers can also offer flexible and fair credit services, allowing consumers to build creditworthiness gradually through responsible BNPL usage, starting with low transaction limits and increasing them based on repayment behaviour,” he said.
The Role of Financial Institutions
As there has been a rise in BNPL users, Ng called on financial institutions to play a proactive role to educate consumers about BNPL’s benefits and risks, and provide tips for managing debts.
He added that institutions should regulate credit limits by assessing consumers’ financial profiles before approving BNPL transactions to prevent excessive debt accumulation, especially for younger consumers who may have limited experience with credit.
He stated that monitoring and reporting BNPL activities will help consumers build credit responsibly and allow financial institutions to track high-risk behaviour.
“This can serve as both a motivator for timely payments and a deterrent against impulsive spending.
“Clear terms and conditions are also essential, ensuring that all BNPL terms such as late fees and interest rates are clearly communicated to consumers.
“Collaborating with BNPL providers to establish responsible lending standards is crucial, particularly for younger consumers who may not fully understand the implications of delayed payments,” he said.
Integrating Financial Education in Schools
Addressing the root causes of BNPL-related debt requires early financial education.
Therefore, he proposed integrating financial literacy into school curricula covering essential topics such as budgeting, debt management, understanding credit scores, and managing impulse spending.
Explaining, he said that budgeting and money management can teach students how to create and maintain a budget, understand income, track expenses, and distinguish between needs and wants.
In understanding credit and debt, the students will be able to understand how credit works, the responsibilities of borrowing, and the consequences of late payments, including interest rates and fees.
“In credit scores, they can learn the importance of maintaining a good credit score and how irresponsible BNPL use can affect future financial opportunities whereas the interest rates and fees topic can help students understand how BNPL schemes, while initially interest-free, can impose high fees for late payments.
“Meanwhile, the topic on impulse spending and financial discipline, a discussion on the psychological impact of impulse buying can be done, particularly in the context of BNPL’s easy accessibility, and teaching strategies for managing impulse spending.
“School curricula can also teach students to set financial goals where students are encouraged to set both short- and long-term financial goals to avoid using BNPL for non-essential items,” he said.
A Path Towards Regulation
In light of the scheme, Ng disclosed that the MFPC is working closely with the government on the forthcoming Consumer Credit Act (CCA), which is expected to be enacted by the end of 2024.
He explained that this legislation, led by the Ministry of Finance, Bank Negara Malaysia, and the Securities Commission, will create a regulatory framework for non-bank credit providers, including BNPL services.
He pointed out that the CCA will require non-bank credit providers to undergo rigorous assessments to prevent consumer harm, prioritise consumer protection, and mandate transparency in credit agreements.
He also emphasised that digital solutions will be leveraged for better oversight, and a one-stop portal will streamline compliance and reporting.
Moreover, he added, Islamic credit providers must adhere to Shariah governance requirements.
“On our side, we can contribute by promoting financial literacy, encouraging the role of licensed financial planners, and providing input on the implementation of the CCA, particularly in areas like consumer protection and responsible lending practices,” he said.
A Call for Responsible Financial Behaviour
Expressing his concern, Ng pointed out that data from the Central Bank of Malaysia (BNM) and other agencies indicate that the BNPL scheme, while popular, does indeed carry risks of debt accumulation.
Based on the Capital Market Development Fund (CMDF) Malaysia 2024 report, he said young Malaysians aged 20-30 account for 13.5 per cent of debt management programme participants, and Bank Negara Malaysia reported that 3.8 per cent of BNPL users missed payments, though this reflects improvement from the previous year’s 5.8 per cent.
Furthermore, he added, findings from the Securities Commission Malaysia showed continued BNPL growth, especially among 21 to 45-year-olds, with an average overdue amount of RM370.
Internationally, he said, an Australian Securities & Investments Commission (ASIC) study in 2018 found that BNPL services fueled increased spending among 18- to 24-year-olds, suggesting that young adults are vulnerable to overspending.
Looking at the statistics, he urged young Malaysians to approach BNPL services with caution.
Aside from increasing financial literacy, especially regarding the risks and drawbacks of BNPL, consumers also need to foster responsible spending habits, such as setting spending limits, assessing needs vs wants, and performing self-affordability checks before making purchases.
“Stick to a budget and track BNPL usage to avoid overextending financially and ensure regulatory oversight to prevent predatory lending practices and provide transparency in fees and terms.
“Push for consumer protection laws that safeguard young adults from debt traps.
“Other than that, consumers can always refer to our ‘My Money & Me Guide 2024’, which covers essential topics like debt management, cash flow management, and budget planning,” he said.
