“Time and again, co-operatives have shown resilience and responded positively to the needs of our members.” These are the opening remarks of Mr Yeo Chun Fing, first deputy chairman for the Singapore National Co-operative Federation (SNCF), at the Co-operative Movement’s inaugural Credit Sector Forum.

Taking place at Andaz Hotel Singapore on a rainy Tuesday afternoon in late August, some 70 representatives from various credit co-operatives in Singapore, alongside colleagues from the Registry of Co-operatives Society (RCS), attended the welcoming get-together. Organised by SNCF, the apex body for co-operatives in Singapore, the forum sought to help the credit sector keep track of industry trends in the finance sector and discuss insightful strategies that benefit them.

For the uninitiated, credit co-operatives are amongst the pioneering batch of co-operatives set up in Singapore; the first co-operative was established before World War II in 1925.

Mr Yeo, who is also the sector chairperson, representing the co-operatives in the credit sector, congratulated several credit co-operatives who will be celebrating their 100^th anniversary in the coming years. “Having gone through War World II and countless other challenges, including Covid-19, this is quite telling of the strength and resilience of the credit sector,” he said. “It is this sign of resilience that benefitted communities.”

“Buy Now, Pay Later” – Helping People Shop Responsibly

The federation invited Mr Arvin Singh, chief executive and co-founder of ‘Buy Now, Pay Later’ (BNPL) service provider hoolah and the in-charge for financial services at ShopBack, to elaborate on the allure of the BNPL service. The financial service, which allows users to split payments into equal segments without needing to pay any interest, has helped consumers make discretionary purchases. It gained popularity during the pandemic when many shoppers had to resort to online means to purchase the things they need. According to FIS’ Global Payments Report 2022, BNPL is projected to see a 40% compounded annual growth rate in Singapore, through to 2025.

According to Mr Singh, Gen Zs, millennials, and gig economy workers are popular purveyors of BNPL services. Cash-strapped consumers have commented that bills are now much easier to stomach with such a flexible payment plan, while banks have lamented about a generational shift away from the use of credit cards to make transactions today. Mr Singh added: “BNPL helps consumers, especially gig workers, manage cashflow.”  

Merchants, who adopted BNPL services into their shop, also stand to benefit from BNPL services. Coupled with the occasional huge marketing campaigns that target the youth demographic, Mr Singh cited that bigger basket sizes and increased conversions draw companies to utilise BNPL services. “We charge a transaction fee to merchants who adopt BNPL services,” he said. “We make it easy for shoppers to sign up to use it.”

Co-op Members Should Be Educated: CASE

Mr Linus Ng, chairperson of the Education Committee at Consumers Association of Singapore (CASE), urged co-operatives to educate their members on the hidden risks of using BNPL services. Since younger customers are more receptive to this financial service, they may fall prey to the dangerous illusion that purchases are cheaper than they really are.  

In an article posted on their website earlier on June 24, CASE cautioned that as a result of a false perception of increased purchasing power, BNPL consumers may spend beyond their means or make impulsive purchases. This comes after CASE received 18 complaints in 1½ years involving BNPL service providers. The complaints include technical issues with payments and inability of consumers to seek refunds.

The consumer watchdog has called for more protection for BNPL users. In the same article, CASE suggested BNPL service providers to regulate advertisements, set mandatory ceilings for people with poor credit ratings and provide clear resource avenues for dispute resolutions.

Whether through roadshows in malls or ad spaces in crowded train stations, BNPL service providers are known to invest huge marketing dollars to increase brand awareness and encourage sign-ups. Mr Ng, who is a corporate lawyer, said that the “seamless and frictionless sign-ups” may result in complacent behaviours amongst BNPL consumers. “Some of them fail to read the fine print attached to the flyers and posters,” he said. “Consumers may not know that they will be liable for late or penalty fees should they default on their monthly instalments.”

Addressing some of the misconceptions of BNPL services, Mr Singh explained how checks and balances have been put in place to ensure consumers are able to afford payments. For instance, most BNPL services require a minimum age to sign up. “We actively ensure users do not overuse or exploit BNPL service,” he reassured. “We reject transactions that are moving in the wrong direction and drive forward financial education to our consumers.”

Are Youths Even More Vulnerable?

When compared to traditional credit cards that come with higher interests, BNPL services are a world apart. Mr Ng posited that the lower barriers to entry may be one of the reasons youths are receptive to BNPL services. “The minimum age to sign up for most BNPL services is 18 years old,” he said. “Individuals don’t even need to have a minimum income to sign up too.”

The younger and tech-savvy generation would also come to appreciate the convenience BNPL services provide. Many of whom cite that the new-fangled financial service has helped them make big ticket purchases, such as celebrity-endorsed makeup or even the newest tech hauls, without needing to shell up the entire cost up front.

Breaking up the cost thus gives rise to the perception that a product costs “lesser” even though the debt is “delayed”, said Mr Ng. He is, however, quick to add: “Debt may not necessarily be bad. There are many instances where people take on debt to finance their practical needs such as renovation, home, or university loans.”

The consumer watchdog urged consumers to be better informed of the risk of creating a cycle of debt from short-term BNPL debts (which may spur consumers to take on a personal loan to offset the short-term debts and in doing so, incur heavier debts). Mr Ng said: “Debt would only become an issue when we do not manage it properly.”

The Best of Both Worlds

But should credit co-operatives feel threatened from the fintech disruptor?

"Yes, and no," Mr Yeo said, explaining that competition between credit co-operatives and BNPL services exists because both services help consumers afford the things they need. "There is some form of competition but of course, there is still some hope.”

Today, credit co-operatives around the world have leveraged technology and tech solutions, such as digital wallets and contactless payment, to better serve their members. The same can be said for BNPL services, which has helped organisations to streamline money management; credit co-ops can consider exploring the business viability and feasibility of adoption of BNPL services in a bid to future-proof themselves.

“Local co-operatives can certainly tap on the technology and infrastructure that BNPL service providers utilise,” Mr Ng said. “However, as co-ops are membership-based enterprises that operate primarily to benefit the greater society through consumer or credit services, they may not have the resources to leverage technology and infrastructure unlike businesses which are generally profit-driven and commercial.” 

“But for those who default, they can consider joining our credit co-operatives as members to help them out," Mr Yeo laughed.

How Can Credit Co-ops Educate Their Members

Below are some suggestions from CASE for credit co-operatives to take home and share with their members:

♦ Keep track on what your expenses are and be aware of the risks of defaulting or making late payment. Consumers should be well-informed about non-payment terms such as late fees and accruement of interest on a debt.

♦ Be open to other sources of financing options, such as credit cards or personal loans. With an integrated repository of BNPL-related spending data in consumers’ credit rating, consumers can gain a better understanding of their financial situation before choosing to use a service.

♦ Ensure you have sufficient cashflow to manage the repayment of debt.

♦ Reading the fine print and understanding the terms and conditions before stepping into a BNPL agreement. As BNPL services are often marketed as a point-of-sale payment method, there may be miscellaneous fees that are not fully disclosed.

By Sng Ler Jun

A version of this story will be published in CASE's Consumer Newsletter. This story has also been repurposed on Co-operative News, read it here.