The Malaysian central bank found that most of the country’s buy now, pay later (BNPL) users came from the lowest income brackets—workers earning less than $1,130 per month.
According to the South China Post, one reason lower-income Malaysians rely on BNPL is its widespread acceptance among merchants, especially for smaller purchases. For example, fast-food chain KFC faced criticism after announcing that customers in Malaysia could buy the company’s signature fried chicken on an installment plan.
The KFC promotion targeted consumers who wanted to eat but waiting for their next paycheck or those who “never have enough money,” according to its social media posts—later taken down.
Detractors of BNPL in the country argue that there are no existing safeguards to stop consumers from taking on multiple BNPL loans, which could lead to crippling debt as the cost of living continues to increase.
Holding to the Same Standards
This same sentiment has been echoed in the U.S., where BNPL installment loans aren’t held to the same regulatory standards as credit cards. This has led many to speculate that a growing mountain of BNPL “phantom debt” remains unreported to credit bureaus and doesn’t appear on credit scores.
This may be changing, as Affirm has recently taken the initiative to report its BNPL data to credit bureau Experian. However, while this is a significant step for the industry, it will take time for the credit scoring model to adjust and include accurate BNPL data.
Everyday Use Cases
In the meantime, BNPL has expanded to cover more use cases, many of which involve smaller purchases. For example, Klarna recently inked deals with Walmart and food delivery company DoorDash.
BNPL has been popular with lower-income users worldwide because there often no credit checks, and payments typically carry zero interest. However, borrowers must still consider potential ramifications, such as late fees.
“BNPL is a credit product that must eventually be repaid and consumers need to be careful with their debt burden,” said Ben Danner, Senior Credit and Commercial Analyst at Javelin Strategy & Research. “Lax underwriting standards and lack of visibility into financial health could lead to significant repercussions down the road for both borrowers and lenders.”
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