The digital era has helped customers to use online transactions, including the rising trend of the Buy Now Pay Later (BNPL) feature – famously known as PayLater – in several ride hailing platforms, marketplaces and e-wallets. The COVID-19 pandemic in the past two years boosted the use of online transactions as governments imposed lockdowns and mobility restrictions. Low penetration of credit cards in Indonesia also becomes another factor why customers prefer using PayLater.
PayLater useful for consumers
The PayLater system is quite similar to credit cards where customers buy first and pay later. The idea emerged as an answer for users who were not bankable or were often rejected by banks because they did not meet the requirements.
By having PayLater features, customers are able to buy now and pay later in installments. They could also enjoy significantly lower payment processing fees than credit cards and bank transfers. Meanwhile, customers can get a full upfront settlement regardless of what they choose. The feature also enables them to enhance operational budgeting and there could also be no chargebacks.
There are several benefits of using PayLater method:
- It helps businesses to increase consumers’ purchasing power and allows them to have bigger basket sizes.
- The credit-based payment method can increase payment success rates and lessen the likelihood of insufficient balance.
- It could also have significantly lower payment processing fees than credit cards or bank transfers.
- It helps businesses to gain access to new customers.
PayLater is quite useful such as for:
- Installments for high-value items. It increases purchasing power for unguarded and underbanked consumers looking to buy high-value items in stores. Some pay later companies, such as Xendit, offers partners instant approval with a flexible credit line and low interest for customers.
- Completion of basket items. For e-commerce, accumulated items may decrease customer’s payment completion and increase cart abandonment. But, paying later erases these risks as customers can finish their payments with a transparent installment.
- The pay later payment method is gaining popularity amongst merchants. It has a wide range of industries, such as in electronics, beauty, education, home living furniture, ticketing, groceries and others.
An analysis by Coherent Market Insights, a global market intelligence and consultancy organization, indicates there is a possible rising growth in PayLater market globally. Before 2027, it is predicted that the value of the PayLater market can grow to US$ 33,638 million from the previous US$ 5 million in 2017, with a growth percentage of 21.2%.
There are several companies in Indonesia that are using and developing pay later features such as:
- LinkAja PayLater
- Shopee PayLater
- Gojek PayLater
- Traveloka PayLater
- Akulaku PayLater
- JULO PayLater
- Xendit PayLater
- Bibli PayLater
Risks in PayLater market
However, the lucrative options of PayLater and the easy nature for its payment and installment have their costs.
The Financial Services Authority (OJK) explained that the ratio of non-performing loans (NPL) in the paylater industry was close to 8% or 7.61% in September 2022.
The OJK’s Head of Non-Bank Financial Industry Supervision Department (IKNB) 2B Bambang W. Budiawan said in November 2022 that the problem was not only a matter of credit risk exposure. However, the paylater business also has a very significant number of customers.
The authority has expressed concern on how the BNPL players handle consumer complaints quickly and effectively. In addition, Budiawan emphasized that the BNPL industry must also have a proven customer complaint system and mechanism.