Rise in Use of "Buy Now, Pay Later" Schemes among Young Consumers and Its Impact on Risk of Over-spending and Credit Assessments

Sir, "Buy Now, Pay Later" (BNPL) transactions remain small, compared to other means of consumer payment, accounting for about 1% of the value of total credit card and debit card payments in the first half of 2024.

While the Monetary Authority of Singapore (MAS) does not currently regulate BNPL firms, those operating in Singapore have committed to the BNPL Code of Conduct that was developed under MAS' guidance to mitigate the risk of debt accumulation and to protect the user interests. MAS provided details on the safeguards in the BNPL Code in our past replies to Parliamentary Questions in November 2022 and more recently, in February this year.

Under the BNPL Code, accredited firms can only offer BNPL services to customers aged 18 years and above, and are not allowed to extend more than $2,000 in credit to a customer unless they conduct an additional credit assessment. The credit assessment includes conducting income checks and credit checks against the BNPL credit bureau, which includes information on BNPL users' outstanding balances, missed payments and delinquencies amongst accredited firms.

The Total Debt Servicing Ratio (TDSR) includes monthly debt obligations from all credit facilities granted by financial institutions regulated by MAS. These account for 98% of all credit granted to Singapore households by commercial entities. MAS does not require financial institutions to include outstanding BNPL amounts when computing the TDSR requirements, recognising that BNPL outstanding amounts tend to be relatively small with safeguards to prevent snowballing.

MoneySense, our national financial education programme, shares content on the importance of money management and financial budgeting on its website and social media channels. These include advising consumers to beware of spending beyond their means while using BNPL schemes and other instalment plans. The national school curriculum from primary up to the tertiary level has incorporated key financial concepts, such as the effects of compound interest and the responsible use of credit. The efforts are complemented by talks and exhibitions organised for youths by MoneySense.

MAS continues to monitor developments in the BNPL sector and will review its regulatory framework as appropriate.

Thank you, Mr Speaker. I thank the Minister of State for his response. I understand it is only 1% but considering the take-up of such services, and I am more concerned about youths and young adults, and the growing popularity of BNPL schemes, does MAS foresee the necessity for stricter regulatory frameworks beyond the existing Code of Conduct? And what proactive steps are being considered to adapt to potential future challenges posed by BNPL schemes?

Sir, I thank Mr Yip for his supplementary questions. I think we need to look at it in three parts. First, the responsibility of the regulator, in this case MAS, the responsibility of the industry and the responsibility of the individual borrower. On MAS' part, as the regulator, as I mentioned, MAS has provided guidance on the development of the BNPL Code. It has also worked with MoneySense, the financial education programme, to encourage users to spend within their means. MAS will continue to monitor the BNPL sector and its development, and review the regulatory framework, as appropriate.

On the industry's part, the code has already been in place since 2023. I have mentioned that in previous Parliamentary replies, but I also wanted to highlight that there is also a BNPL credit bureau which shares information on customers' outstanding amounts and delinquency status. I also wanted to let the Member know that all four BNPL firms are now accredited to the BNPL Code and they must ensure customers that fail to pay on time are not able to use their BNPL services to make additional purchases.

That is what the regulator can do. That is what industry can do. I think it is also important that borrowers and individuals also bear responsibility for their own individual purchases. There is a good CNA article about the BNPL issue and it spoke about the different purchases, particularly made by youths and young people in spending what they want and what they need. One big takeaway was this - many of the youths there who had BNPL purchases spoke of cost of living, but they also mentioned their choices of living in terms of expenditure and also living beyond their means.

So, in short: regulator must play their part; industry must play their part; but so too borrowers must play their part.