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The Monetary Authority of Singapore (MAS) has published a response to an op-ed article that calls for buy now, pay later (BNPL) products to be regulated as credit.
Last week, a senior correspondent at The Business Times of Singapore published an op-ed urging the MAS to regulate BNPL products in the same way that other credit products are regulated.
Highlighting the contrast between Singapore’s approach and that of the UK and Australia, author Benjamin Cher argued that Singapore’s “light touch” towards BNPL puts consumers at risk.
In Singapore, as previously covered by VIXIO, BNPL products are unregulated, but providers are expected to adhere to the terms of the BNPL Code — an industry initiative that was created with the help of the MAS and the Singapore Fintech Association.
The BNPL Code lays out a list of dos and don’ts to which members agree to adhere.
For example, the code recommends that outstanding payments should be capped at S$2,000 per customer at all times, unless the customer completes an enhanced credit check.
Although Cher agreed that these are sensible guardrails, he said the BNPL Code offers little in the way of deterrence against those who ignore them.
“Any breaches of this code have limited consequences,” he said. “An offending company is taken off the BNPL registry and loses a ‘trustmark’,” but there is nothing to stop repeat offenders from operating a BNPL business.
Cher also noted that the Oversight Committee that investigates potential breaches of the code suffers from an obvious conflict of interest, given that the committee members are nominated by the same companies they investigate.
This is particularly problematic, Cher argued, in cases where the meaning of the code is open to interpretation.
For example, where the code recommends that firms “avoid aggressive solicitation”, it is up to the committee to decide what behaviour constitutes “aggressive”.
Given that committee members could be accused of similarly aggressive conduct, the members have an incentive to set a low bar for themselves and other firms.
Voluntary is not good enough
According to “industry insiders” cited by Cher, it was the MAS who worked behind the scenes to bring BNPL firms together and to nudge them towards creating the code.
However, this voluntary approach is a poor fit for a high-risk sector such as BNPL, particularly against a backdrop of high inflation and rising living costs.
“MAS has typically adopted light-touch regulatory approaches to financial services with an element of innovation,” he said.
“In the case of BNPL, however, the innovation can be hard to pinpoint. The companies in this space have placed a layer of technology over an age-old service: unsecured credit.”
Ending with a quote from Stephen Jones, Australia’s assistant treasurer and financial services minister, Cher said BNPL “looks like credit, acts like credit and carries the same risks as credit”, and should therefore be regulated as credit.
MAS chimes in
In an unusual step, the MAS responded directly to the op-ed piece through a written statement from Dawn Chew, director of corporate communications at the authority.
Although Chew said the MAS “shares Mr Cher’s concern” about excess consumer borrowing using BNPL, she also said the central bank disagrees that BNPL products should be regulated in the same way as other credit products.
“Relying on an industry-led Code that is consistent with MAS’ expectations is a good way to foster compliance,” said Chew.
“A more prescriptive regulatory approach would unduly constrain BNPL providers and limit consumer choices and would not be commensurate with the risks posed by such schemes.”
Chew pointed out that, in 2022, as BNPL transactions accounted for only 1 percent of all credit and debit card payments, a voluntary approach is proportional.
“If offered responsibly with the safeguards set out in the Code, BNPL schemes will allow consumers to manage their spending without excessive risk of indebtedness,” she said.
Regarding the Oversight Regime, Chew said the MAS plans to use an independent “assessor” to evaluate and verify BNPL firms’ implementation of the code.
“Firms that are assessed to be compliant with the Code will be distinguished through a standardised accreditation trustmark and listed in a BNPL Registry,” she said.
“The trustmark will allow consumers to identify BNPL providers that have implemented the safeguards.”
She added that MAS will “closely monitor” compliance with the code and will “consider” stronger regulation if necessary.
Meanwhile, as covered by VIXIO, both the UK and Australia are quickly moving towards the introduction of new legislation to regulate BNPL as credit products.
The UK is currently leading the race to get their first, but the latest proposals may have hit a snag last month, after fintechs objected to an exemption for retailers who offer pay-in-instalments credit directly to their own customers.
Noting that this would exclude large retailers and bigtech firms from the scope of the regulation, fintechs argued that the exemption is unfair, anti-competitive and called for the government to rethink its approach.
