The luxury of not paying immediately was once reserved for credit card holders But now there are new kids on the block as Buy Now Pay Later (BNPL) services have expanded access to financial flexibility to a wider and bigger audience.
BNPL services as a whole have certainly caused a whirlwind worldwide as it reached $200 billion in global transaction value for 2022. In Malaysia alike, the Buy Now Pay Later market is seen to be brimming with many ambitious entrants, with myIOU being one of the standouts.
So what is BNPL and how does it work? FLY journalists Zer Yan and Zi En had an opportunity to chat with Gwen Khor, Head of Marketing of myIOU, where we demystify what Buy Now Pay Later offers, how to properly respond to its risks, and what makes myIOU so special within a very crowded market?
What is Buy Now Pay Later?
“It allows you to get your purchase immediately, hence Buy Now, but splitting the price into instalments, defining Pay Later, which sums up the abbreviation of Buy Now Pay Later” – Gwen Khor
Gwen kicks off the interview by enlightening us about the true definition of BNPL. As mentioned, Buy Now Pay Later is a digital payment alternative that allows one person to make immediate purchases and split the payments into affordable instalments overtime. BNPL does not only provide a service for customers, but to merchants and stores as well. It aims to add value to their products by helping increase sales and customer groups. Since BNPL companies do not charge interest for instalments, they earn profit by charging a service fee towards all the stalls and merchants that are participating in the programme.
According to Gwen, we, as Malaysians, are accustomed to the usage of credit card instalments in the consumer market. However, this privilege is currently restricted to credit card users, making it inaccessible to those who aren’t eligible to use them, such as university students or fresh graduates entering the workforce. Buy Now Pay Later acts as a new alternative that is targeting these groups, consisting primarily of debit card holders and young adults, to enjoy paying in instalments before they are eligible to use a credit card.
There are a few other notable differences between BNPL and credit card services. Firstly, BNPL does not block any credit on your card. For example, when a customer purchases something that is worth RM8000 on their credit card, this amount is immediately blocked on their account. If they only have a RM10000 limit, only RM2000 would be allowed to be utilised until the previous money has been paid.
Furthermore, BNPL services typically charge 0% interest. Even though credit cards offer instalments, many of them charge a certain minimum interest. Moreover, customers can benefit from better cash flow management. For example, if someone would like to purchase something valued at RM 1000. Instead of utilising the RM1000 once, Buy Now Pay Later helps in splitting the amount, for example to RM300 per month. This will help you in having a stronger cash flow, which aids in managing any potential emergencies.
The story of myIOU so far
Interestingly, myIOU is actually not the first venture of its parent company, IOUpay, but in fact, an indirect brainchild of their origin business – transaction messaging services.
Remember the OTP/TAC that we all need to enter when buying something online? Through Gwen, we found out that IOUpay actually started off as the aggregate generator of transaction-related messages. Messages can be sent on behalf of clients such as big banks and corporations to customers in order to help authenticate customers or inform about loyalty programs.
IOUpay’s expertise with financial institutions, their main clientele, became a catalyst to the launch of myIOU – the BNPL arm of IOUpay. They believe it could fulfil a product gap which traditional banks could not serve due to their stringent regulatory environment.
According to Gwen, myIOU aims to be part of an ecosystem, which would create synergies with IOUpay’s other business lines, such as their newly-acquired subsidiary which provides civil servants salary deduction services to banks. For example, myIOU could actually serve as a stopgap to provide short-term funding for civil servants who are under probation and are yet to be qualified for a bank’s personal loan application. Such an ecosystem would also help IOUpay generate sufficient cash flow to run myIOU in a very margin-slim BNPL market.
With regards to how myIOU differentiates itself in a very crowded field of Malaysian BNPL providers, Gwen first mentions the fact that myIOU provides longer tenures for repayment, spanning up to 6 months in instalments, while still being completely free of interest. This practice is believed to be starkly different to other firms, who may include hidden charges for longer instalments. Furthermore, Gwen stressed on the fact that IOUpay has been a strong advocate of responsible financial management. myIOU is not believed to just have its eye on the BNPL market itself, but rather a component of the ecosystem above to help achieve financial stability. Finally, the fact that IOUpay is a listed company in Australia provides stable funding for the firm, and hence guarantees stability for merchants under myIOU.
Touching on her responsibilities as the Head of Marketing in IOUpay, Gwen mentions that her day is normally occupied by discussions with senior management which aid in the achievement of the firm’s various targets. Furthermore, as a different direction is set for the company quarterly, she would then have to lead a market research plan that aligns with such direction (eg. liaising with the sales team to strategize marketing for their merchants). Finally, she also reveals that it is a role that requires a lot of reading, as a broad base of knowledge is needed for market research to be effective.
On myIOU’s marketing approach, Gwen starts by clarifying that myIOU is not a mass-market product, but instead focuses its effort to a very defined target audience – population between the age of 18 to 39. Such a focus is translated into efforts which will maximise their exposure to the base. Part of their efforts include offering a Shariah-compliant BNPL alternative and also choosing Yuna, a wildly popular singer among the young, to be the face of myIOU. These efforts would also set a good foundation for expansion into neighbouring nations such as Indonesia.
Persuading Merchants to Hop On Board
“These merchants could be offering their products to probably our parents. But parents grow old, and they will need to replace these customers. And all of you here are actually the future consumer that is going to spend. So we are helping the merchants to actually prepare for a new group of customers with a younger demographic. – Gwen Khor”
In Gwen’s perspective, one of the strongest points to convince merchants to adopt BNPL services is by telling them it targets a new group of customers with a younger demographic. The current merchants could be offering the items, or their services to the generation of our parents. As our parents continue to grow older, the younger crowd is needed to replace them as a new customer group. Hence, the Buy Now Pay Later service helps the merchants to prepare for a younger demographic of consumers.
Adopting BNPL has many other benefits. With BNPL, items are more affordable as it allows customers to pay smaller amounts in longer periods. Merchants also benefit in terms of exposure as Buy Now Pay Later companies typically publish all participating merchants on their marketing channels. Companies also work with social media influencers to spread the word about the service, which would further expose customers to the merchants. Due to the large number of clients that banks have, conventional credit cards are unable to provide this benefit.
How about the risks？
Overspending may be a risk associated with the use of Buy Now Pay Later services. To respond to such risk, Gwen states that this should not only be the consumer’s responsibility, but to be borne by BNPL firms themselves too. She mentions the role that a credit assessment system plays in averting such risk. Using myIOU as a case, access to the myIOU platform would only be granted if users pass a credit check through verification of their personal info. In contrast to other apps with interfaces that may encourage excessive spending, the homepage of myIOU clearly shows the user’s credit balance, hence instilling financial discipline in the user itself. All the above efforts are how myIOU fulfils its responsibility to avert the risks associated with BNPL.
The future of myIOU
myIOU has so far posted impressive results in terms of its total transaction value and customer activation numbers. Faced with the exciting yet uncertain future the BNPL market faces, Gwen believes that myIOU has a very bright future outlook since she personally experienced the growth when joining in 2021. She states that IOUpay’s main strategy is to prepare way ahead before things get stagnant. First of all, they have taken steps to increase financial flexibility, IOUpay have successfully attained several partners which will help fund the development of their products. Secondly, they are preparing the launch of various supplementary products, eg. a Visa-branded prepaid card which would enable consumers to continue to enjoy BNPL transactions at merchants not affiliated with myIOU. Finally, these steps would then enable the service to be matured in Malaysia and hence bring greater profit.
Despite calls to tighten regulation as indicated in the newly-released 2023 Budget, there is much to expect from the BNPL industry in the future. Gwen believes that increased regulation could actually restrict BNPL companies from practising unethically, and through the implementation of a universal credit scoring system, users could be more effectively vetted. Hence, such changes would actually lower the overall risks and increase reliability of Buy Now Pay Later services.
When presented with the opportunity to provide any further advice to the youth, a demographic with relatively low financial literacy, when using BNPL services. Gwen stresses again on the principle of buying within your own limit. Be a smart consumer and do not shop out of your means!
“Even though we are in the industry, we are not advocating everybody to solely use BNPL, but just as an alternative product, which enables you to have flexibility on your cash flow – Gwen Khor”
Secondly, Gwen believes that BNPL should be treated as an alternative payment method instead of the main spending tool. The service should only be used when the stuff needed is essential and BNPL can help further the user’s financial flexibility. Young users should be encouraged to really understand their financial situation or have a clear picture of their budget first before deciding to use Buy Now Pay Later services. Knowing yourself better is the way to spend better!
“This is my advice to the young people, which is to get to know yourself better. – Gwen Khor”
Researcher(s): Zer Yan, Zi En
Reviewer(s): Emeline Yong and Elina Yong