China buy now pay to develop the market later, challenge ahead: experts

Buy Now Post Pay (BNPL) apps arranged clockwise from top left, Pace, Rely, Octifi, Atome, Grab and Hoolah, on iPhone in Singapore, on Sunday, May 6 6 year 2021.

Wei Liet Tay | Bloomberg | beautiful pictures

Experts told CNBC that China’s buy-now-pay-later market will grow – but the industry is still in its nascent stage and challenges still lie ahead.

Kapil Tuli, professor of marketing at Singapore Management University’s (SMU) Lee Kong Chian School of Business, said:

Buy-now-pay is a form of payment in which consumers purchase goods and pay them off over a period of time in installments, usually without interest. Although BNPL usually has no interest, some providers charge high late fees.

According to Tuli, a few factors are fueling the “perfect storm” for the growing trend. These include unprecedentedly low interest rates, the rise of online payments through “super apps” like Alipay and WeChat, and heavily funded fintech startups eager to acquire new customers.

In addition, China’s cashless society, huge e-commerce market, and online and mobile shopping have become a common life in China, said Boh Wai Fong, vice dean of the Business School Nanyang at Nanyang Technological University in Singapore.

According to a survey by research and consulting firm PayNXT360, China’s BNPL sector has emerged as one of the fastest growing markets in the Asia-Pacific region.

According to BNPL Survey Q2 2021, BNPL payments in the country are expected to grow 51.3% year-on-year and could reach $82.78 billion by 2021.

Consumerism on the rise

Boh said the rise of online shopping and “seamless integration” of BNPL payments with e-commerce platforms has encouraged more purchase decisions to be made.

By 2020, about 74% of Chinese people use mobile payment daily because of its ease and convenience, according to a survey by China Clearing and Clearing Association.

Research shows that the tech-savvy younger generation of China is also jumping into the race to satisfy their hunger for the latest gadgets and luxury goods.

People between the ages of 18 and 29 make up 36% of consumer finance borrowers, excluding home loans, according to a study by the Academic Center for Chinese Economic Thinking and Practice at Tsinghua University.

But critics have warned that the trend could fuel overspending habits. A UK consumer advocacy group conducted a study and found that almost a quarter of BNPL . users spent more than they had intended, because the service was available.

Boh said: With Covid-19 impacting household incomes, Chinese households and consumers may turn to BNPL as an option to “fix” their costs in the long term. items with great fare.

According to the professor, the growth of BNPL is “inevitable”, who pointed out that unlike other markets, the e-commerce and mobile payments industry in China has been “very stable” and suffered dominated by some big guys like Alibaba and Tencent. That means there may be less opportunity for new players like international companies to break into the Chinese market, she said.

Well-known companies in China include Ant Group’s micro-lending business, Ant Check Later. Also known as Huabei, it allows Alipay users to make online and offline purchases without a credit card, with repayment options via installments. That service has since been shut down, according to a company spokesperson.

Reports also indicate that Ant Group plans to add more Southeast Asian payment services to Alipay+, its cross-border payment solution, including an e-wallet or BNPL service.

Competitor Tencent is reported launched a trial version of Fen Fu, allowing some WeChat users to pay in installments on purchases.

In recent months, Chinese regulators have cracked down on the country’s internet giants has largely been dominated by a few tech giants. Thorough scrutiny and targeted new rules anti-competitive practices and data protection.

New players set sights in China

One BNPL player eyeing China is Atome, a rapidly growing Singapore-headquartered startup.

The fintech company operates in nine markets, including Singapore, Indonesia, Vietnam, the Philippines and mainland China. It has more than 20 million registered customers in Asia, as part of parent company Advance Intelligence Group.

While targeting young professionals in their early 20s to late 30s, the company is also seeing adoption in older segments, such as those over 40, who value “the convenience, transparency and flexibility” that BNPL offers, Tongtong Li, general manager of Atome China told CNBC in an email.

BNPL is still at a relatively nascent stage in Mainland China but we expect the industry to grow strongly in the medium to long term.

Tong Tong Lee

general manager, Atome China

Since launching in mainland China in September 2020, the business has “rapidly expanded” to cover tier 1 megacities and smaller tier 2 cities in areas such as Chongqing, Chengdu and Luzhou, Li said.

It has also grown to include a merchant network of 1,500 local and international brands such as Nike, New Balance and Tissot. Consumers spend about 1,000 CNY to 1,500 CNY (about $157 to $235) per transaction on beauty, fashion makeup and skin care products, according to Li. She added that they are also seeing increasing momentum towards the high-fashion category.

Big banks are also trailing BNPL companies.

Atome Financial, the business that operates Atome and its digital lending platform, started 10-year cooperation with Standard Charted. The partnership includes $500 million in funding and co-production of co-branded products in multiple markets in Asia.

“BNPL is still at a relatively nascent stage in mainland China but we are expecting a strong mid- and long-term growth for the industry,” said Li.

She said Atome will continue to expand to more tier 1 and tier 2 cities given the “huge potential” the company holds, adding that the company can capitalize on its market presence. market in the region to promote more cross-border transactions between Southeast Asia and mainland China.

China holds back

Since the end of last year, Chinese regulators have expand their regulations suppressing China’s so-called “platform economy” covers a wide range of e-commerce areas from online shopping to food delivery and fintech.

“Buy now pay later” encourages spending, sometimes triggering what is perceived as overspending, said Ruan Tianyue, assistant professor in the Department of Finance at the National University of Singapore Business School. “.

Like other forms of consumer credit, a portion of BNPL balances may have to be declared bad debts when a borrower defaults or is late in making payments. “Excessively high levels of non-performing credit can threaten economic and financial stability,” she said.

NTU’s Boh points out that BNPL programs are still “relatively new” in China. The regulatory framework and industry guidelines are not yet complete, and so it is important to develop the system, she added.

Tuli from SMU agrees and says that while BNPL has become a popular and viable option for Chinese consumers who have a hard time accessing credit cards, the sector is likely to see market growth is “under-measured” in the near future.

“Over the past six months, the frenzy of growth in China has now subsided. Chinese regulators are very sensitive. [about] Tuli said.

“Going forward, companies need to be careful in how they engage consumers… I don’t expect to see a wild development in the wild west like we’ve seen before,” he said. said, referring to how the BNPL sector is seeing promising growth ahead of the tech crackdown. China buy now pay to develop the market later, challenge ahead: experts

Sarah Ridley

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