Buy now, pay later delinquency rates ‘higher’ than other credit types — CIBI

BORROWINGS via buy now, pay later (BNPL) products have higher delinquency rates compared to other credit types, but loan volumes remain low even as the segment has continued to grow as these bookings are mostly made up of small amounts.

“BNPL basically targets your lower income segments — segments that banks used to kind of avoid because their ability to pay is in question. So, [even] with the lower ticket sizes of the loans, if you’re actually targeting those who would even borrow small amounts, it does increase your default risk,” CIBI Information, Inc. Chief Analytics Officer John Harley Chan told reporters late on Tuesday.

“To begin with, these are P100, P500, P1,000 purchases, and one auto loan is like P1 million. So, how many BNPL transactions will equal one auto loan? Right now, it’s still not affecting the entire industry, but there’s this segment that really is showing higher delinquencies — so that’s something that I guess fintechs (financial technology companies) are very much aware of,” he said.

Citing data from the Credit Information Corp. (CIC), Mr. Chan said on Tuesday that loans with tenors below six months, which is where most BNPL loans fall under, had a 28% market share of credit products. This was up from 14% in 2021.

CIC data also showed that personal loan and BNPL bookings rose by 16% year on year to P853 billion in 2024. 

“A lot of it are impulse purchases. You’re lying down on your bed, you’re scrolling through your Lazada and Shopee, and then all of a sudden you find something nice to buy. You buy it because you see that the monthly payment will be just this amount. With other traditional credit products like auto or mortgage, there’s more intent to really pay this off because if you don’t pay, you lose your car or you lose your house,” Mr. Chan said.

“With cards, [it’s also the same] to some extent, because the moment you stop paying, you lose the ability to use your card next time. With BNPLs, since these are item purchases, what the consumers are doing is that there’s much more leeway or indulgence to not pay because they think that, ‘oh, I could just get another one later on.’”

Mr. Chan said the availability of credit information will help financial firms manage asset quality risks that could come from high delinquencies.

“It doesn’t mean that we should avoid the entire segment altogether because our access to [credit data] allows us, the banks, the lenders, to be able to see the customer as a whole with those behaviors included,” he said. — AMCS

Buy now, pay later delinquency rates ‘higher’ than other credit types — CIBI
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