China buy now pays market to grow later, challenges ahead: experts


Woman shopping online.

Oscar Wong | instant | Getty Images

The Chinese buy now pay later market is expected to grow, but the industry is still in its infancy and challenges lie ahead, experts told CNBC.

There has been a surge in interest in BNPL’s services in China over the past decade, said Kapil Tuli, professor of marketing at the Lee Kong Chian School of Business at Singapore Management University (SMU).

Buy Now and Pay Later is a form of payment in which consumers make purchases and pay them back over a period of time in installments, often without interest. While BNPL is generally interest free, some providers charge high late fees.

A few factors are fueling the “perfect storm” for the growing trend, according to Tuli. These include unprecedented low interest rates, the rise of online payment via “super apps” like Alipay and WeChat, and extremely well-funded fintech start-ups keen to acquire new customers.

In addition, the Chinese cashless company, huge e-commerce market and mobile and online shopping have become ubiquitous in China, said Boh Wai Fong, deputy dean of Nanyang Business School at Nanyang Technological University. in Singapore.

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

According to the BNPL survey for the second quarter of 2021, BNPL payments in the country are expected to increase by 51.3% on an annual basis and could reach $ 82.78 billion in 2021.

Consumerism on the rise

The boom in online shopping and the “seamless integration” of BNPL payments with e-commerce platforms has encouraged more buying decisions, Boh said.

In 2020, around 74% of Chinese people used mobile payments every day because of their ease and convenience, according to a survey by the China Payment and Clearing Association.

Tech-savvy Chinese millennials are also jumping on the bandwagon to satisfy their thirst for the latest gadgets and luxury goods, research shows.

People between the ages of 18 and 29 make up 36 percent of consumer credit borrowers, excluding home loans, according to a study by the Center for Economic Thought and Practice of China at Tsinghua University.

But critics have warned that the trend can fuel overspending habits. A consumer advocacy group in the UK conducted a study and found that almost a quarter of BNPL users were spending more than they expected because the service was available.

With Covid-19 impacting household incomes, Chinese households and consumers can look to BNPL as an option to “smooth out” their long-term spending on big-ticket items, Boh said.

BNPL’s growth is “inevitable”, according to the professor, who pointed out that unlike other markets, the e-commerce and mobile payments sectors in China are already “very stable” and are dominated by several big players like Alibaba. and Tencent. This means that there may be limited opportunities for new players like international companies to enter the Chinese market, she said.

Popular players in China included Ant Group’s microcredit business, Ant Check Later. Also known as Huabei, it allows Alipay users to make online and offline purchases without a credit card, with options to pay them off in installments.

The icons for the Buy Now Pay Later (BNPL) apps apps are arranged, clockwise from top left, Pace, Rely, Octifi, Atom, Grab, and Hoolah, on an iPhone at Singapore, Sunday June 6, 2021.

Wei Leng Tay | Bloomberg | Getty Images

New player targets China

One BNPL player targeting China is Atom, a fast-growing Singapore-based start-up.

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 its parent company Advance Intelligence Group.

While targeting young professionals in their early 20s to late 30s, the company is also seeing a recovery in older segments, such as those over 40, who value “convenience, transparency and the flexibility ”BNPL brings, Tongtong Li, Atom China chief executive told CNBC in an email.

BNPL is still at a relatively nascent stage in mainland China, but we expect strong growth in the medium to long term for the industry.

Tongtong Lee

Managing Director, Atom China

Since launching in mainland China in September 2020, the company has “rapidly expanded” to cover Tier 1 mega-cities and Tier 2 small towns in regions like Chongqing, Chengdu and Luzhou, Li said.

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

Big banks also support BNPL companies.

Atom Financial, the business line that operates Atom and its digital lending platform, has entered into a 10-year partnership with Standard Charted. The partnership includes $ 500 million in co-branded product financing and collaboration across multiple markets in Asia.

“BNPL is still at a relatively nascent stage in mainland China, but we expect strong growth in the medium to long term for the industry,” Li said.

She said Atom will continue to expand to more Tier 1 and Tier 2 cities given the “huge potential” it holds, adding that the company can leverage its presence in the regional market to generate more cross-border transactions between Southeast Asia and mainland China.

China represses

Since late last year, Chinese regulators have stepped up their regulatory crackdown on China’s so-called “platform economy”, which spans a range of e-commerce sectors, from online shopping to delivery. food and financial technologies.

The practice of buying now paying later “encourages spending, sometimes triggering what is considered overspending,” said Ruan Tianyue, assistant professor in the finance department at the National University of Singapore Business School.

Like other forms of consumer credit, a fraction of BNPL balances may need to be reported as non-performing loans when the borrower defaults or is late in making a payment. “Too high a level of non-performing credit can threaten economic and financial stability,” she said.

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

Tuli from SMU agreed and said that if BNPL has become a popular and viable option for Chinese consumers who struggle to access credit cards, the industry is expected to experience more “measured and underrated” market growth in the market. the near future.

“Over the past six months, the mad rush for growth in China has now subsided. Chinese regulators are very sensitive [about] anything that could create systemic risks to financial systems, ”Tuli said.

“Going forward, companies need to be careful how they attract consumers… I don’t expect to see a growth of the Wild West that we’ve seen earlier,” he said, making reference to how the BNPL sector was experiencing promising growth before the technological crackdown. .

– Correction: This article has been updated to accurately reflect that Huabei is still in business.


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