The hidden risks of the BNPL boom

The “buy now, pay later” (BNPL) market is poised for explosive growth, with Bloomberg estimating its Asia-Pacific market size will surge from USD 84 billion in 2025 to USD 175 billion by 2028. This boom is driven by BNPL’s appeal as an interest-free, quick alternative to traditional credit, making it accessible to a wide range of consumers, including those who may not qualify for credit cards.

However, this convenience carries significant risks, primarily consumer over-indebtedness and a higher potential for default. The low barrier to entry is a key concern, as BNPL providers often use “softer” credit checks that make it easier for people with poor credit files to accumulate debt. The “buy now” feature also creates a psychological disconnect from the “pay later” obligation, encouraging impulsive purchases of items like clothing, electronics, and groceries. Unlike loans for major assets like cars or homes, BNPL lacks the threat of repossession, which can lead consumers to feel a lower obligation to repay. This risk is amplified by the demographics of users; in Singapore, a staggering 77% of Gen Zers have used BNPL, a group that is often more financially vulnerable.

The consequences of this trend are already visible. In Indonesia, the Financial Services Authority reported that 3.74% of BNPL-related debt was nonperforming, up from 3.22% the previous year. In response, the authority has launched financial literacy campaigns and imposed new rules, including a minimum age of 18 (or married) and a monthly income threshold for borrowers. They’ve also capped daily interest rates for online personal loans. Other countries, like Singapore, have implemented their own regulations to curb over-borrowing.

On a macro level, BNPL also poses a risk to the broader private credit market. Since BNPL data often does not integrate with traditional credit reports, it can distort a consumer’s true credit quality. Lenders relying on conventional credit reports may not see a borrower’s full debt load from BNPL, creating a “masking effect” that could endanger the stability of the entire private credit market. For this reason, consumer finance companies must push for greater data integration to ensure credit reports accurately reflect all borrowing, including BNPL.

Despite these regulatory efforts, they may not be enough to counter a long-term shift in consumer behavior. The younger generation’s comfort with digital platforms and preference for instant gratification sets a new precedent for risk. This new mindset, combined with the ease of accumulating debt through BNPL, poses a serious challenge for both regulators and consumers in managing the long-term impacts of this booming industry.