Several electronic payment services have emerged during the COVID-19 pandemic as more merchants, stores and vendors adopted contactless payment methods to curb the risk of COVID-19 transmission. Among them, so-called “buy now pay later” (BNPL) services have boomed and become part of many companies’ strategies to attract customers.
However, concerns are rising regarding the ability of customers to keep up with the eventual bills.
Taiwan’s BNPL industry sees the nation’s 7 million to 8 million people who do not have credit cards as its target market, but it is also profiting from an e-commerce boom amid the rising cost of living. Several BNPL services, including Chailease Consumer Finance Co’s Zingala, 21st Century Digital Technology Co’s Pay-Later, Advance Intelligence Group’s Atome and Net Protections Holdings Inc’s Aftee, are competing for market share.
BNPL services are particularly attractive to young people who are not eligible for credit cards, because they do not require them to provide salary certificates or financial statements when signing up. Being approved for using a BNPL service is also signifcantly quicker than for a credit card.
From the perspective of inclusiveness, BNPL services are convenient and might help certain users manage their personal finances. If users make their payments on time, BNPL offers interest-free loans with fixed installments. Moreover, many foreign BNPL operators also offer small loans to users with positive payment records.
However, BNPL’s growing popularity among young Taiwanese, to whom it offers yet another easy way to place orders on e-commerce platforms on a whim, is unnerving to financial regulators and lawmakers, who fear that some services might prey on people in their 20s who are financially naive and tend to spend more than they can afford. They also worry that the services’ popularity might lead to a situation similar to the credit and cash card crisis of 2005 and 2006, when there was mounting card-related bad debt amid excessive consumption.
Some e-commerce platforms offer BNPL without conducting any credit background checks, while some non-financial businesses offer BNPL services in a legal gray area that is not supervised by financial regulators. This raises the question of how far policymakers need to go to mitigate the challenge that the services pose to the financial well-being of Taiwanese.
Last week, the Financial Supervisory Commission told a meeting of the legislature’s Finance Committee that it would unveil regulatory guidelines for BNPL services before the Lunar New Year holiday, saying that the policies would focus on risk management, the protection of consumer rights and measures to educate users on how to use the services prudently.
Lawmakers across party lines have urged the government to regulate the sector, and require operators to provide clearer terms of service and more thoroughly check applicants’ consumer behavior before offering their services to them.
After a banner year in 2021 that saw Taiwan’s GDP growth reach an 11-year high and local equities setting all-time records, few people foresaw last year’s economic slowdown and share selloff.
Amid sticking inflation, potential layoffs at many companies and the prospect of falling investment in the nation’s industry, Taiwanese might increasingly adopt smarter consumption habits in the post-pandemic era, instead of splurging on consumer goods, as some market watchers have predicted.
Regardless of developments in the financial service market, the government should update its regulations on the BNPL sector and ensure that people understand the risks the services might pose.
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