the complex factors, from concerns over regulatory oversight to the evolving dynamics of consumer behaviour in the wake of the pandemic, shaping the landscape of BNPL services in the region. The scenario at hand According to Kailash Madan, head of global sales at Primer, a payment automation company, BNPL players have a capital-intensive business model. It is also a model that needs scale to ensure profitability, which is prone to fluctuations. “Pace and Shopback’s decision is part of an ongoing trend of greater consolidation in the BNPL segment, and we may continue to see this continue in the coming months,” he told Inside Retail. According to Madan, the upside of this consolidation is that many BNPL players are now innovating to set themselves apart from the remaining players.  “For example, Zip has launched a series of innovative offerings, including the Zip ‘Pay Anywhere’ functionality and the rollout of the inaugural BNPL physical card for offline purchases in physical retail locations — in addition to a partnership with Google Pay in the US,” he added. Closer to home, Atome has also announced an expansion of its $100 million debt facility to penetrate the Philippines market. Details matter For retailers, changes in the BNPL landscape highlights can have a knock-on effect on their relationships with customers, so it’s important to be well-informed before entering into any partnerships.  Madan said that merchants and businesses must first understand what they are selling and who they are selling to in order to properly assess whether the acceptance of BNPL makes sense.  “For example, a retail business selling apparel for less than an average of $50 may have a customer pool with limited appetite for BNPL – but another retailer selling niche products or mid-tier luxury goods may want to consider offering this payment method to capture more customers,” he noted. The nature of BNPL as a category means that there is greater exposure to risks such as changes to regulations and higher costs. He said businesses must take time to assess the reliability and market share of these service providers, and their adherence to regulations if any. Madan said BNPL consumer demand is still growing worldwide, and those who remain in the market will sweep up that demand.  He believes that with Pace and ShopBack’s exit from the card-heavy Singapore market, more market share will fall into the hands of the remaining players, such as Atome or even Grab.  “It’s worth noting that the value of BNPL to the end customer is fairly established now. For merchants, it means increasing basket sizes, which makes it a win-win situation for all involved,” he opined. Another factor worth noting in all of this is the impact of inflationary pressures on BNPL services. “As inflation drives up interest rates and financing costs, BNPL providers face squeezed profit margins, particularly if they offer interest-free financing options. Constrained access to capital also makes it harder for these providers to manage credit risk, and higher default rates could also result from the high cost of living for customers,” Madan elaborated. The bigger picture According to IDC’s How Asia Buys and Pays 2023 report, the ASEAN region will see a whopping 100 per cent expansion in e-commerce, and this is in part driven by BNPL services.  “In part, this is due to the popularity of BNPL with the unbanked population in the region. Likewise, even with the conclusion of Shopback’s BNPL services, the popularity of BNPL for Singaporean consumers will not wane too much, if it does,” Madan explained. According to a recent report from the Bank of International Settlements, the popularity of BNPL varies widely around the globe. The countries with the highest adoption rates are Australia and Sweden.  Other countries with significant BNPL uptake are China, Finland, Germany, the Netherlands, New Zealand, Norway, Singapore, the United Kingdom and the United States. The typical profile of a BNPL user appears high-risk. The majority of BNPL app users across countries are under the age of 35.  Younger and tech-savvy individuals, including Millennials and Generation Z, often do not possess credit cards and are generally less financially literate than older generations. Regulation is welcomed In a welcome move, the Australian government is opening consultation on draft legislation to regulate the BNPL arena. According to a post by Stephen Jones, assistant treasurer and minister for financial services, the emergence of BNPL products has created new opportunities in the Australian economy. The Australian Finance Industry Association has estimated that BNPL adds as much as A$18.4 billion to the GDP and supports more than 120,000 jobs. “At the same time, BNPL isn’t subject to the regulatory framework that applies to other credit products. This can lead to poor product disclosure, inadequate dispute resolution processes, excessive default fees and unaffordable lending practices that lead to hardship and financial stress,” he was quoted as saying. This is why the government is taking action to regulate BNPL. Essentially, the draft legislation amends the law to bring BNPL into line with other types of credit. Under the proposed reforms, BNPL providers will be required to hold an Australian credit licence. These providers will have to comply with existing requirements under the Credit Act, including in relation to product disclosure, dispute resolution and hardship assistance. “BNPL providers will also be required to take steps to make sure they are lending responsibly. This requirement will operate in a way that is flexible, adaptable and proportionate to the risk of consumer harm,” Jones was quoted as saying.