M’sian BNPL regulations impact on startups, merchants, users

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Naturally, the continual relevance of buy now, pay later services in Malaysia and across the globe has attracted some scrutiny.

And not only is this scrutiny coming from financial bloggers and the media, but it’s also coming from regulators.

Many countries have started to realise the need to rein in BNPL companies, which, since their inception, have virtually bypassed credit laws.

This is true in Malaysia, where BNPL schemes offered by non-bank operators actually do not fall within the regulatory purview of Bank Negara Malaysia (BNM) or any regulatory agency, according to BNM’s 2021 Annual Report released in March this year.

In the UK, plans for BNPL regulations have already been in talks since early 2021 as a conclusion of the Woolard Review, which was set up to look at the unsecured credit market.

According to American law firm Skadden, the review highlighted the potential for consumer detriment due to inappropriate promotion of BNPL, poor consumer understanding, lack of affordability assessments and visibility of these products on credit files, and inconsistent treatment of customers in financial difficulty.

Malaysia will likely follow suit in taking action, with Bank Negara Malaysia having said in March 2022 that it would work with the Ministry of Finance and Securities Commission Malaysia to enact the Consumer Credit Act this year.

But with three months left in the year, the act has still not taken effect. So, when will regulations actually be implemented, and is it actually as dire for BNPL services as it seems?

Why it matters

Some might still be wondering what the big deal is with BNPL and regulations.

The main issue with BNPL services is the fact that they don’t have to report to any regulatory agency. Like what the Woolard Review outlined, there are no guidelines on how these schemes are promoted.

Previously, we interviewed financial bloggers about how to use BNPL responsibly. A number of them actually expressed that BNPL can be dangerous.

We asked financial bloggers how to use BNPL responsibly / Image Credit: Yi Xuan / KC Lau / Suraya Zainudin / Helmi Hasan

This is because BNPL allows users that do not have access to loans or credits to spend beyond their means, which can lead to a culture of debt.

According to an article by The Edge, BNM said that while BNPL schemes allow customers to make payments in instalments with zero interest, there may be other charges levied by BNPL providers on the customers through processing fees and late-payment fees.

Granted, some claim to not have any hidden, processing, or late-payment fees, but this does not apply to every BNPL service provider, as we found in our review of four major players in Malaysia.

With credit cards, there are a lot of laws in place to ensure that consumers are protected and providers of consumer credit are doing so responsibly.

Due to this, BNPL is more accessible, which has pros and cons. This is as certain credit activities may target consumers who are vulnerable and less financially savvy.

Who are the regulators & regulatees

As mentioned, the proposed Consumer Credit Act (CCA) has been worked on by BNM, Ministry of Finance, and Securities Commission Malaysia.

A public consultation paper regarding the proposed CCA has also been written by the Consumer Credit Oversight Board (CCOB) Task Force in collaboration with the three aforementioned institutions.           

The CCOB is an independent competent authority for consumer credit that will be formally established once the CCA is enacted. The CCOB complements the oversight role of existing ministries and agencies.

The article also shared that BNM expects BNPL schemes offered by or in partnership with banking institutions to already be observing practices consistent with responsible lending expectations.

Those who might be affected the most by the CCA would be non-bank BNPL players in Malaysia including Atome, ShopBack PayLater, Split, myIOU, FavePay, PayLater by Grab, and SPayLater.

It’s important to note, though, that the CCA will regulate companies providing credit services to individuals as well as micro and small enterprises (MSEs). This includes not only BNPL companies but factoring companies, leasing companies, impaired-loan buyers, debt collection agencies, and more.

What’s going to happen?

To understand what the CCA might do, here are its objectives:

  • To establish an authorisation framework for non-bank entities carrying on the business of providing credit and credit services; 
  • To provide a comprehensive and consistent framework for credit consumer protection through the imposition of minimum standards of conduct on credit providers and credit service providers; 
  • To establish effective surveillance, supervision, and enforcement framework to deter and reprimand unfair, unethical, and predatory practices; and
  • To ensure effective coordination among the Regulatory and Supervisory Authorities in delivering better consumer outcomes through the formation of a high-level Council for Consumer Credit Malaysia. 
The federated regulatory model from the Public Consultation Paper on Consumer Credit Act / Image Credit: Consumer Credit Oversight Board

But objectives aside, how are consumers actually going to be affected?

Basically, one key thing is that the CCA will require credit providers to observe responsible lending standards such as performing credit checks and affordability assessments. This will make BNPL services a little less accessible.

The act will also promote clear, accurate, consistent, and timely disclosures of information to credit consumers for decision-making, so perhaps BNPL services will have to include a lot more disclaimers now.

On top of that is prohibiting practices that are “inherently unfair to credit consumers”, such as engaging in deceptive conduct to mislead or adopting abusive practices to intimidate borrowers when pursuing debt collections.

Key areas of consumer protection under the CCA will include prohibited business conduct, advertisement and solicitation, credit agreement, financing charges, credit assessment, debt collection and repossession of goods, and relief from financial hardship.

When will it take effect?

The CCA is expected to run from 2023 to 2024 in Phase 1 of the CCOB’s transformation of the consumer credit regulatory landscape.

Perhaps BNPL companies will be given a grace period before having to comply. Maybe they’re already preparing for it.

Point is, regulations are definitely coming. But what’s uncertain is whether the ever-so-attractive BNPL schemes will take a hit because of it.

It seems like the general consensus is that these regulations will be a threat to the industry’s growth. Plus, merchants and retailers that are popular through BNPL providers might lose out on some sales.

Consumption might also fall due to the increased difficulty of accessing credit. Those who are unbanked or underbanked will likely feel the effects the hardest.  

But maybe that’s for the betterment of the economy, especially in the long run.

According to an article by Forbes, regulation could even benefit the BNPL players. This is because the regulatory scrutiny could benefit BNPL companies’ reputation, even bringing them to the same playing field as big banks. I believe then that investors might find BNPL companies more appealing, too.

However, I think the increased regulation might serve as an obstacle for smaller BNPL startups new to the scene, thus reducing competition.

  • Read other articles we’ve written about BNPL here.

Featured Image Credit: Bank Negara Malaysia





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