As ‘buy now, pay later’ gains traction in Indonesia, banks are after some of the action
“Buy now, pay later” (BNPL) is one of the most popular types of fintech products in Indonesia today. As the name suggests, BNPL allows customers to commit to a purchase and make partial payments over time until the balance is paid. BNPL has caused quite a stir in Indonesia for the past two years in the mature e-commerce and fintech sectors. The main players in this sector are Kredivo, Akulaku, Traveloka PayLater, GoPay, Ovo and ShopeePay.
Last year, 55% of new e-commerce users chose to use BNPL’s options when making purchases on e-commerce platforms, according to a investigation by Kredivo and the Katadata Insights Center. The survey was based on 10 million transactions across six e-commerce platforms made between January and December 2020. In total, 41% of consumers said they use BNPL to control their monthly cash flow.
Not to be outdone, various conventional financial institutions are entering this segment by partnering with fintech and BNPL providers. For example, Traveloka was approached by public lenders BIS and Mandiri in 2019 and 2020, respectively, for their BNPL offerings.
Meanwhile, BNI has partnered with Traveloka and Shopee PayLater. In September, BNI and Traveloka launched a “virtual card number” that allows Traveloka PayLater users to transact on e-commerce platforms beyond the travel booking platform ecosystem.
Several banks are developing their own BNPL products. Mandiri bank would have plans to launch its BNPL product in the fourth quarter of 2021, with a balance limit of up to IDR 5 million ($ 350). CIMB Niagara’s comparable service is should be launched next year, while the BCA would be examine the possibility to create a similar product.
“This is a natural progression of the tech industry. As technology and market adoption matures, incumbents will begin to track and create their own products, ”said Kenneth Li, partner at MDI Ventures. KrASIA.
BNPL is not a new concept. It is similar to existing installment finance products. However, BNPL has gained popularity due to the convenience brought by application-based integration with e-commerce platforms.
While credit card applications can take days or weeks to be approved, users can apply for a BNPL account and receive an activation notice within 24 hours, making it the preferred choice for many millennials and consumers. of Generation Z.
“Indonesia’s credit card penetration is very low, at around 5%. And since the start of the pandemic, the production of credit cards has slowed. This shows an opportunity for BNPL to overtake credit cards in terms of penetration, primarily due to the scalable nature of the product, ”Li said.
When it comes to handing out short term personal loans like BNPL, established banks have several advantages. Banks have deeper balance sheets that set them apart even from the best-funded fintech startups. This empowers banks to offer higher limits than stand-alone fintech providers. Banks also have large consumer and merchant bases who may be more willing to adopt new services, especially if bundled with existing functionality. New BNPL products developed by banks are diversifying their offerings, offering institutions new ways to reach customers who do not have a credit card, such as MSME owners.
However, Li argued that it is not easy for conventional banks to replicate fintech innovation. “Traditional banks are constrained by regulation and compliance, not to mention that their risk thresholds are also lower than those of full-fledged BNPL players. Li believes that banks and fintech providers can coexist in this industry. He predicts that more banks will partner or even acquire fintech platforms to offer this service instead of developing their own products from scratch.
“Rather than take the risk of creating and deploying spend in a new business model that may not work, it would be wiser to partner with existing players and tap into an established ecosystem like e-commerce companies. who already have millions of traders and customers, “Li said.
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