After the proliferation of loan services online (pinjol), now financing companies and banks are busy entering the pay later business.
Unlike the requirements for applying for a credit card which tend to be complicated, consumers who want to get pay later services only need to fill in their personal data online and verify their ID card. Consumers who are at least 17 years old – or in some banks, the minimum age limit is 21 years old – can immediately use the service.
Pay Later is a service to postpone payments (buy now, pay later) by providing installment or settlement facilities for our transaction bills.
Mimi (not her real name) is a millennial who is interested in using the convenience of pay later for her daily life. She has been using this service since 2018, from one of the e-commerce. However, he limits his transactions to only 30 million rupiah per month.
“Why are you interested? Initially looking for alternatives and the platform also offers directly, especially e-commerce. Mainly because of the integration with e-commerce, so choose to use paylater,” said Mimi while talking to VOA.
However, Mimi admitted that she does not always use pay later for consumptive needs, and more for business and personal travel needs.
Mimi is also disciplined in paying later and tries hard not to be late so as not to be charged interest that is almost the same as credit card interest.
“Try to avoid using it for consumptive needs because for travel needs themselves before the D-day the installments must be paid off. Never been late paying pay later, and the interest at the beginning is quite competitive with credit cards. But over time it's calculated the same,” he explained.
However, because she does not feel comfortable with the pay later service, Mimi said she prefers to use credit card services when making transactions between countries, or when she is in another country.
OJK Warns Pay Later Service Providers
With the rise of the pay later business, the Head of the Literacy, Financial Inclusion and Communication Department of the Financial Services Authority (OJK) Aman Santosa, warned service providers to have adequate risk mitigation and apply the principle of prudence from the start of the partnership implementation.
“As explained earlier, these steps include comprehensive partner selection, as well as periodic performance monitoring and evaluation. In the event of a default, the Bank must have an adequate risk mitigation strategy, including by forming a loss reserve for non-performing loans and determining settlement steps,” Aman said in a written statement to VOA.
OJK, he added, is closely monitoring the implementation of pay later business by finance companies and banks. This is because the total distribution of financing receivables from finance companies in the buy now pay later (BNPL) service until May 2024 alone has increased by 33.64 percent (year on year/yoy) to Rp6.81 trillion. OJK also reported a ratio of non-performing loans or non-performing financing (NPF) from this pay later service.
“The Gross NPF and Net NPF ratios of PP BNPL as of May 2024 were 3.22% and 0.84%, respectively. BNPL financing in Indonesia has quite a large market potential in line with the development of the digital-based economy. For banking NPL data specifically for paylater, it is not yet specifically available,” he explained.
Aman further reminded the public to be aware of various other costs in pay later transactions, such as administration fees, interest and fines, if payments are not in accordance with the provisions. This will have an impact on the consumer's credit history which will affect the approval of the next credit.
“Currently, pay later loans have also been included in the credit history recording in the Financial Information Services System (SLIK – OJK Checking). This means that the history of pay later installment payments can affect the consumer's credit history. OJK also always reminds the public to borrow wisely according to their needs and ability to repay and to try to borrow for something productive,” he explained.
BCA Confident Pay Later Payments Will Run Smoothly
Although some parties are worried about the potential for default, Executive Vice President (EVP) of Corporate Communication and Social Responsibility of Bank Central Asia (BCA), Hera F. Haryn said that the number of BCA Pay Later service users, which has reached 110,000 customers, has so far remained stable.
“This amount grew 108 percent compared to the position as of December 2023. As for the outstanding, it has reached Rp223 billion as of May 2024, growing 94 percent compared to the position as of December 2023,” said Hera in a written statement to VOA.
He added that the ratio for problematic credit in pay later or non -performing loan (NPL) remained at 1.9 percent as of March 2024.
BCA's pay later product itself has a credit limit of up to IDR 20 million, with competitive installment interest rates from 0% per month for 1 and 3 months; and 1.25% per month for 6 and 12 months. This is valid until September 2024.
“In principle, BCA always distributes credit, including Pay Later, prudently. In line with the positive economic growth prospects in 2024, we hope that transactions using BCA Pay Later will continue to increase, thus impacting BCA's consumer credit growth,” he explained.
Economist: Risk of Default for Pay Later and Pinjol is the Same
Bank Permata economist Josua Pardede said the risk of default or problematic credit from this pay later service is as high as a loan. online (pinjol). Therefore, OJK, he said, must be able to supervise the implementation of pay later businesses better so that they do not suffer the same fate as pinjol. Moreover, from the application side to get this pay later service, it is easier than applying for a credit card service; and encourages a consumer culture.
“Indeed, because the process is easy and ends up for needs that cannot be controlled, because spending is sometimes for shopping for something that may not be the main need. So the risk of increased credit is also high, similar to pinjol,” said Josua while talking to VOA.
He also encouraged pay later service providers to strengthen risk management so that it does not backfire, which has an impact on the debt and capital performance of the service provider company.
“What needs to be prioritized, from the regulatory side, is to strengthen it, especially how, for example, the use of AI or verification of candidates who apply for pay later must be strong to be able to mitigate the risk of bad credit. The most important thing is also education, literacy,” said Josua.
This means, that perhaps how society, especially millennials, some of whom may tend to FOMO (fear of missing out or afraid of missing out.ed), they need to be educated so that their spending is truly for primary needs, or educated on how to manage debt so that it is healthy,” he concluded. (children)
