This time last year, <a href="https://www.theedgesingapore.com/issues/fintech/buy-now-pay-later-services">the rapid rise of “buy now, pay later” (BNPL) platforms</a> was cause for concern among banks and analysts. Banks noted a generational shift away from credit cards in favour of instalments, while pundits wondered if young consumers — some still of schooling age — could make good on those purchases.

A year later, the pressure has shifted upstream to the platforms themselves. Shopping and rewards platform Shopback acquired BNPL platform Hoolah last November, while fintech company Pace Enterprise mounted the first takeover of a BNPL competitor here by acquiring Rely in March.

As a market and a base of operations, is Singapore too small for BNPL ambitions? Turochas “T” Fuad, founder and CEO of Pace, prefers to adopt a “blue ocean” ideology and maintains that things are looking up.

“We are far from saturation,” <a href="https://www.theedgesingapore.com/news/fintech/pace-acquires-rely-targets-reopening-sectors-and-asia-expansion">Fuad tells The Edge Singapore</a>. “There is definitely room within the industry for healthy competition.” He cites the Global Payments Report by US Fortune 500 company FIS, which found that although BNPL accounted for only 0.6% of Asia Pacific (APAC) e-commerce transaction value in 2021, it is projected to grow its transaction value share to 1.8% or US$78 billion ($108.1 billion) of regional e-commerce by 2025.

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“Tencent recently launched a BNPL feature within WeChat, and regional players Atome, Hoolah and Rely are seeing strong growth in Singapore,” notes FIS.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='https://www.theedgesingapore.com/issues/fintech/buy-now-pay-later-services?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Buy now, regulate later? Are 'buy now, pay later' services good for cash-strapped consumers?</a>

Six months into Shopback’s takeover of Hoolah, its executives are optimistic about the sector. To support its payments arm, Shopback in January brought in former Zip chief commercial officer, Hamish Moline, as its managing director of financial services.

“I wouldn’t call Asia — Singapore in particular — saturated in terms of consumer and merchant activation of instalments. There’s a lot of growth left in the market,” <a href="https://www.theedgesingapore.com/news/fintech/hoolah-takeover-shopback-steps-payments-rewards-tow">says Moline</a>.

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See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/news/fintech/how-fintech-startup-went-global-people-focused-payments?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>How a fintech startup went global with people-focused payments</a>

Point-of-sale and e-commerce projected growth in Singapore

The way Moline sees it, successful fintech players in the Singapore market are shrewdly co-opting the BNPL concept instead of building a brand from scratch. “I think the interesting part of Singapore was that the bigger platforms got onto [BNPL] faster than they did in Australia.”

He adds: “The pure-play BNPL platforms in Australia had a lot of growth and success, but the reality is that if they are only in one market and a pure-play BNPL, it’s going to be a challenge to scale up and get out of that market.”

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When merchants sign on to BNPL platforms, they want large-scale campaigns, says Moline. He explains: “Merchants are now saying: ‘We want to activate five markets at once.’ So, I think that’s the big movement towards consolidation: Merchants want to deal with reputable platforms that are already at scale.”

Worldwide, BNPL accounted for 2.9% of global e-commerce transaction value in 2021 and is projected to claim a 5.3% stake by 2025. BNPL is led globally by Klarna, Afterpay (acquired by Block, formerly Square) and PayPal, with challengers like Zip and Sezzle in hot pursuit.

To stay ahead of Singapore and the region’s corporate and economic trends, <a class='gtm_see_also_3_inread' style='text-decoration: underline;' href='/section/latest?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>click here for Latest Section</a>

<blockquote> <div>The bigger companies are prepared and may even welcome appropriate regulation, whereas smaller providers may find regulation burdensome. I think that’s when you may start to see some consolidation of those companies.</div> </blockquote>

“Consumers are clearly embracing the ease of use and flexible financing BNPL offers. Now, it seems like every merchant is looking to offer BNPL to satisfy growing demand,” says Peter Wickes, general manager, EMEA, enterprise, at FIS.

But Wickes points to an eventual consolidation. “The bigger companies are prepared and may even welcome appropriate regulation, whereas smaller providers may find regulation burdensome. I think that’s when you may start to see some consolidation of those companies.”

Read the full cover story:

<hr/>See: <a href="https://www.theedgesingapore.com/news/fintech/pace-acquires-rely-targets-reopening-sectors-and-asia-expansion">Pace acquires Rely, targets reopening sectors and Asia expansion</a><hr/>

See also: <a href="https://www.theedgesingapore.com/news/fintech/hoolah-takeover-shopback-steps-payments-rewards-tow">With Hoolah takeover, Shopback steps into payments with rewards in tow</a>

See also: <a href="https://www.theedgesingapore.com/news/fintech/atome-offers-bnpl-cathay-pacific-flights-resists-sector-consolidation-groups-us2-bil">Atome offers BNPL for Cathay Pacific flights, resists sector consolidation with group's US$2 bil valuation</a>

Ranina Sanglap of S&P Global Market Intelligence believes the BNPL boom in Australia is “likely at a tipping point this year”.

“Higher rates could upend a business model that has attracted more than 30 players to the market,” writes Sanglap in an April 4 report. “Low interest rates in recent years allowed BNPL operators to borrow cheaply to fund the gap between paying merchants and getting paid by customers. The funding environment in the past few years also gave BNPL companies room to offer more concessions to retailers to increase their market share.”

With an estimated 80% of industry revenue, three players dominate Australia’s BNPL scene: Afterpay, Zip and Humm Group, formerly Flexigroup.

As of June 2021, Afterpay had a market share of 43.8%, according to US industry research house IBISWorld. Zip’s share was 23.6%, while Humm Group had a market share of 13.7%.

Other players accounted for the remaining market share of about 18%. But all that power has translated into neither meaningful returns nor healthy share price growth.

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Afterpay listed on the Australian Securities Exchange (ASX) in May 2016 with a A$25 million ($24.56 million) IPO. Its share price reached a high of some A$160 in February 2021 before closing at A$66.47 in its Jan 19 curtain call.

Following a A$39 billion acquisition, Afterpay’s new parent company Block began trading on the ASX the next day at A$172.50. Its share price reached a high of A$196 at the start of April before tumbling to A$143.12 as of May 4.

Meanwhile, shares in Zip crossed A$12 in February 2021, matching Afterpay’s euphoria that month, before starting a freefall that has yet to end.

Over the past six months, shares in Zip have fallen A$5.17, or 83%, to close at A$1.03 on May 4.

Shares in Zip fell some 10% that day alone, following news that more than 20 million shares will be released from voluntary escrow. Some 7.46 million shares will be released on May 12, another 1.5 million on May 23 and a final tranche of 13.2 million shares on June 1.

These tranches of shares correspond to the scrip Zip paid for BNPL targets Twisto Payments in Europe, Spotii Holdings in the Middle East and QuadPay in the US.

Finally, shares in Humm Group shrunk to a quarter of its former A$2-odd value in 1Q2020 owing to the outbreak of Covid-19. Its share price has yet to recover to pre-pandemic levels, closing at A$0.78 on May 4.

Despite the persistent downward trend, Goh Tee Leng, portfolio manager at local fund manager ArchCap, remains upbeat on the embattled Australian BNPL names.

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A strong proponent of Australian BNPL platforms, particularly Afterpay, Goh believes Covid-19 was an accelerator for e-commerce, and by extension, BNPL services. “Habits form after 30 days. Once you start online shopping and the habit forms, even though it’s no longer the Covid-19 period, you will realise this is a new way to shop.”

As a new economy company, Afterpay is still in its growth phase, says Goh. The fruits of the company’s labour are yet to come. “Afterpay’s Australian operations are actually profitable. The only reason why the company is still unprofitable on the whole is because they’re expanding into the US. They’re copy-pasting the business model that they grew in Australia, into the US.”

<a href="https://www.theedgesingapore.com/capital/investing-strategy/heritage-global-capitals-goh-ditches-deep-value-investing-embrace-new">Goh first spoke to The Edge Singapore</a> about his investments in Afterpay last April. Formerly portfolio manager and co-founder of Heritage Global Capital Fund, Goh is also director of the Tat Hwa Group, his family’s holding company.

He believes the BNPL concept will outlast the pandemic push to e-commerce and a low interest rate environment — two shortterm factors named by Sanglap of S&P Global Market Intelligence.

“If you think about credit cards, they make money only when you default on your payment, which is a bit ironic to me,” says Goh. “It’s like a hospital where the doctors are there to actually cure the sick, but they only make money when patients stay sick for longer.”

With Afterpay and other BNPL platforms, “every single stakeholder within the ecosystem gains”, says Goh. “Merchants pay the take rates, a commission of about 3–6%, while consumers have bigger checkout baskets without paying any commission. I feel this is a more value-accretive way of tackling this ecosystem.”

Could Australia, the global hub for BNPL platforms, hold clues to how Singapore’s BNPL landscape will look like after the dust settles? Yes, and no, says Goh.

<blockquote> <div>If you look at the e-commerce space, VCs are just throwing money at every single e-commerce [company] to allow them to continue growing their user counts.</div> </blockquote>

Firstly, conditions here are more forgiving for young upstarts. What Southeast Asia lacks in dominant fintech names like Afterpay and Zip, the region makes up for with ample funding, says Goh.

“One thing I noticed about Southeast Asia is that there is a lot of venture capital (VC) funding. I mean, if you look at the e-commerce space, VCs are just throwing money at every single e-commerce [company] to allow them to continue growing their user counts.”

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Because Southeast Asia is aflush with venture capital, even small companies that eventually get squeezed out will be kept afloat for some time, says Goh. “All this VC money sloshing around the economy allows for a lot more players, [for the market] to be more fragmented.”

Next, consumers here, too, are still getting used to the concept, says Goh. Credit cards remain the popular option for now, as they offer rewards not seen in other markets, like miles for discounted flight tickets.

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The Global Payments Report found that credit cards retained their e-commerce market share lead in Singapore at 42.2%, but digital wallet growth stole the spotlight in 2021.

Propelled by the growth of super-app Grab, digital wallets grew 47% y-o-y, rising to a 29.2% share. Cards continue to represent a majority of point-of-sale (POS), or offline spending, with credit cards (33.9%) and debit cards (20.4%) combined expected to retain majority status at the POS through 2025.

From 2021: <a href="https://www.theedgesingapore.com/issues/fintech/buy-now-pay-later-services">Buy now, regulate later? Are 'buy now, pay later' services good for cash-strapped consumers?</a>

BNPL, meanwhile, commanded a market share of 4% among e-commerce and 1% among POS in 2021. Goh believes, however, that credit cards will soon be relics of the past. “With each generation, the number of credit cards that each individual owns actually decreases. The younger generation actually prefers to spend via debit cards.”

He points to a generational shift in spending mindsets, brought on by economic distress in recent decades. “These younger users are shifting to debit cards because they saw their parents live through the Global Financial Crisis. They were old enough to see how it affected their parents and their families. They understand the damage of being over-leveraged in that sense, and hence, when it comes to credit, they’re a bit more wary.”

As the BNPL sector matures, the winners are pulling ahead — but so are regulators. On March 21, the Singapore Fintech Association (SFA) formed the Buy Now, Pay Later Working Group (BNPL WG), with members Atome, Grab, and Hoolah, under the guidance of the Monetary Authority of Singapore (MAS).

The BNPL WG has also brought on industry players Ablr, Fave, Latitude Pay, Pace, Rely, Split, and Zip.

This industry-led initiative will develop a BNPL framework to protect consumers, slated for the latter half of the year. The final framework will address behavioural guidelines and enforcement mechanisms for organisations offering BNPL solutions, says the SFA.

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Loo Siew Yee, assistant managing director (policy, payments and financial crime) at MAS, says: “BNPL schemes offered in Singapore today include some safeguards to mitigate the risk of excessive debt accumulation by consumers. The BNPL Framework will be an important step forward to formalising standards for the industry to ensure consumers’ interests continue to be protected.”

Shadab Taiyabi, president of the SFA, believes that BNPL has established itself as one of the key emerging trends of Singapore’s fintech ecosystem — and one with the potential to unlock significant benefits for Singapore consumers, but with “sufficient guardrails” in place.

“SFA is proud to lead the BNPL working group in defining the best practices and standards that will uphold fairness and transparency among providers. This will ensure that consumer interests are protected, promote growth for industry players, and that we continue to put Singapore on the map as a beacon of fintech innovation,” says Taiyabi.

Photos: Albert Chua/The Edge Singapore, Bloomberg

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