Buy Now Pay Later in Southeast Asia – “you either die a hero or live long enough to become the villain”

A while ago, we published our analysis on Buy Now Pay Later (BNPL) here. We decided to ask members in Impulso, Momentum Works’s exclusive community, whether they believed that Buy Now Pay Later companies would survive the long term. 

With the recent wave of BNPL launches and fundraisings (Butter and Fundii raising funds in London and Vietnam respectively, Pace collaborating with OCBC, and Pinelabs launching BNPL in Malaysia) the last few days, we thought it’ll be interesting to share some of the thoughts from our Impulso members.

6 pieces of interesting insights from our Impulso community from various tech, finance and corporate backgrounds from China, Southeast Asia and Latin America: 

1. BNPL will work well with long tail ecommerce which is not big in many countries in the Southeast Asia region. However, the problem with partnering with these major ecommerce platforms is that once the BNPL business model is tried and tested, most ecommerce platforms will want to do it on their own (or keep most of the margins). 

2. Recent empirical experience from China shows that BNPL is not necessarily more secure than cash loans (contrary to what many had believed). BNPL platforms need to be part of something to survive – I don’t think standalone ones make sense for the region. 

3. There needs to be 3 factors for BNPL to succeed:

(a) Good digital infrastructure of the country like digital payment system and e-commerce system, 

(b) Good credit scoring to retain low default rates, this require the company has a much high quality consumer data as possible, so will be easier for tech companies; 

(c) Able to persuade governments that you are not creating trouble for them. This requires good government relations. 

4. Difference between BNPL in Western vs Southeast Asia countries:  

(a) In developed countries, to attract customers, Western BNPL companies (e.g. Affirm, Klarna) usually partner up with a slew of individual retailers on their websites. You can browse and buy on these websites, and BNPL is one of the payment methods. 

(b) In Singapore, BNPL companies (e.g. Atome, Hoolah) compete with other global BNPL players, and sign up global partners (no easy feat). But they work with offline retailers and offer a lot of promotion to acquire customers and make them stick and use their app. 

(c) In emerging Southeast Asia countries (TH, ID, VN, MM), most shopping is done on “big head” marketplaces like Shopee and Lazada, so it’s hard for SEA BNPL to grow distribution via independent retailers.

(d) See similar case in China – no independent Chinese BNPL startups.

5. Outlook of BNPL in Southeast Asia: Just look at Omise– it has lots of similarities with BNPL players, but focusing on payment gateway services. It tried to do the same to expand into Southeast Asia, but couldn’t get distribution channels up in emerging Southeast Asia countries, nor could it compete with the mature infrastructure in Singapore (i.e. global platforms and incumbent payment gateways). It’s now just mainly focused on the Japan market. 

6. Lessons from Chinese BNPL: Chinese consumers are no strangers to BNPL. After all, Huabei, Ant’s virtual credit service, is sort of a BNPL tool, and it has become one of the troubles of quite a few young people. Huabei is not profit making, but it leads customers to move on to Jiebei, the micro loans product, which is very profitable. (What makes Jiebei even more profitable is ABS and 100x gearing ratio – and this is one of the things that got regulators to stop Ant’s IPO.) So now, the Huabei and Jiebei products are in limbo. You either die a hero or live long enough to see yourself to become the villain.