Impact of M’sian BNPL regulation on startups, merchants, users


Naturally, the continued relevance of buy-it-now and pay-later services in Malaysia and around the world has prompted some scrutiny.

And not only is this scrutiny coming from financial bloggers and the media, but it’s also coming from regulators.

Many countries have begun to realize the need to rein in BNPL companies which since their inception have virtually circumvented credit laws.

This is the case in Malaysia, where BNPL programs offered by non-bank operators actually fall outside the regulatory purview of Bank Negara Malaysia (BNM) or any regulatory agency, according to the BNM’s 2021 Annual Report. published in March this year.

In the UK, draft BNPL regulations have already been in talks since early 2021 as a conclusion to the Woolard Review, which was set up to examine the unsecured credit market.

According to US law firm Skadden, the review highlighted the potential for consumer harm due to improper promotion of BNPL, poor consumer understanding, lack of affordability and visibility of these products in credit files, and inconsistent treatment of customers in financial difficulty.

Malaysia will likely follow suit in taking action, with Bank Negara Malaysia saying in March 2022 that it would work with the Malaysian Ministry of Finance and Securities Commission to enact the Consumer Credit Act this year.

But three months from the end of the year, the law has still not come into force. So when will the regulations actually be implemented, and is it really as disastrous for BNPL services as it seems?

why is it important

Some might still wonder what is wrong with BNPL and regulation.

The main problem with BNPL services is the fact that they do not have to report to a regulatory agency. As the Woolard review pointed out, there are no guidelines for how these programs are promoted.

Previously, we asked financial bloggers about how to use BNPL responsibly. A number of them have actually expressed that BNPL can be dangerous.

We asked financial bloggers how to use BNPL responsibly / Image credit: Yi Xuan / KC Lau / Suraya Zainudin / Helmi Hasan

Indeed, the BNPL allows users who do not have access to loans or credit to spend beyond their means, which can lead to a culture of indebtedness.

According to an article by The Edge, BNM stated that while BNPL programs allow customers to make interest-free installment payments, there may be other fees levied by BNPL providers on customers through processing fees and late payment fees.

True, some claim to have no hidden fees, processing or late payment, but this does not apply to all BNPL service providers, as we found in our review of four major players in Malaysia.

With credit cards, many laws are in place to ensure consumer protection and consumer credit providers do so responsibly.

Because of this, BNPL is more accessible, which has advantages and disadvantages. Indeed, some credit activities may target vulnerable and less financially savvy consumers.

Who are the regulators and regulated persons

As mentioned, the Consumer Credit Bill (CCA) was developed by the BNM, the Ministry of Finance and the Securities Commission Malaysia.

A public consultation document regarding the proposed CCA has also been drafted by the Consumer Credit Oversight Board (CCOB) Task Force in conjunction with the three aforementioned institutions.

The CCOB is an independent competent authority for consumer credit that will be formally established once the CCA is enacted. The CCOB complements the oversight role of existing departments and agencies.

The article also stated that BNM expects BNPL programs offered by or in partnership with banking institutions to already observe practices consistent with responsible lending expectations.

Those who could be most affected by the CCA would be the non-bank BNPL players in Malaysia, including Atome, ShopBack PayLater, Split, myIOU, FavePay, PayLater by Grab and SPAyLater.

It is important to note, however, that the CCA will regulate companies providing credit services to individuals as well as micro and small enterprises (MSEs). This includes not only BNPL companies, but also factoring companies, leasing companies, buyers of bad loans, debt collection agencies, etc.

What’s going to happen?

To understand what the CCA could do, here are its objectives:

  • Establish an authorization framework for non-bank entities engaged in the business of providing credit and credit services;
  • Provide a comprehensive and consistent framework for the protection of credit consumers by imposing minimum standards of conduct on credit grantors and credit service providers;
  • Establish an effective monitoring, oversight and enforcement framework to deter and reprimand unfair, unethical and predatory practices; and
  • Ensure effective coordination between regulatory and supervisory authorities to deliver better outcomes for consumers through the formation of a high-level consumer credit council in Malaysia.
The Federated Regulation Model of the Consumer Credit Act Public Consultation Paper / Image Credit: Consumer Credit Supervisory Council

But beyond the objectives, how will consumers really be affected?

Basically, a key element is that the CCA will require credit providers to adhere to responsible lending standards such as completing credit checks and affordability assessments. This will make BNPL services a little less accessible.

The law will also promote clear, accurate, consistent and timely disclosure of information to consumers of credit for decision-making, so perhaps BNPL’s services will need to include a lot more disclaimers now.

In addition to this, practices that are “inherently unfair to consumers of credit” must be prohibited, such as engaging in deceptive behavior to mislead or engaging in abusive practices to intimidate borrowers in collection of receivables.

Key areas of consumer protection under the CCA will include prohibited business practices, advertising and solicitation, credit agreements, finance charges, credit reporting, debt collection and repossession. of property, and alleviation of financial hardship.

When will it come into effect?

The CCA is scheduled to run from 2023 to 2024 in Phase 1 of CCOB’s transformation of the consumer credit regulatory landscape.

Perhaps BNPL companies will get a grace period before they have to comply. Maybe they are already preparing for it.

The thing is, regulations are definitely coming. But what is uncertain is whether the ever-attractive BNPL programs will take a hit.

It seems that the general consensus is that these regulations will pose a threat to the growth of the industry. Additionally, merchants and retailers that are popular with BNPL suppliers could lose some sales.

Consumption could also fall due to the increased difficulty in accessing credit. Those who are unbanked or underbanked will likely feel the effects the hardest.

But maybe it’s for the betterment of the economy, especially in the long run.

According to a Forbes article, the regulation could even benefit BNPL players. Indeed, regulatory scrutiny could benefit the reputation of BNPL companies, even bringing them onto the same playing field as big banks. So I think investors might also find BNPL companies more attractive.

However, I think the increased regulation could be a barrier for smaller BNPL startups new to the scene, reducing competition.

  • Read other articles we’ve written about BNPL here.

Featured Image Credit: Bank Negara Malaysia


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