Should Singapore Follow the UK and Australia Model and Regulate Buy Now, Pay Later (BNPL)?

In recent years, Buy Now, Pay Later (BNPL) services have rapidly transformed the way consumers shop—offering interest-free installments at checkout with minimal friction. While convenient, these services raise significant concerns about debt accumulation, consumer protection, and regulatory oversight. Meanwhile, both Australia and the United Kingdom have responded with comprehensive regulatory proposals for BNPL services.

Prevalence of Buy Now, Pay Later in Singapore

In 2023, Singapore consumers spent $3.4 billion using BNPL services from third-party providers such as Atome, Grab PayLater. This is a small drop as compared to the $142 billion spent using credit and debit cards in the same year. However, there has been a growing trend of consumers holding more debt. In Singapore, the total number of bankruptcy applications rose by 24% from 3986 in 2023 to 4925 in 2024. Even though BNPL services are usually interest free for short term loans and convenient for consumers, these very features become concerning against the backdrop growing financial imprudence and a lack of regulatory oversight.

Current BNPL Framework in Singapore

Singapore’s BNPL sector is currently governed by a voluntary BNPL Code of Conduct, developed by the Singapore FinTech Association and guided by the Monetary Authority of Singapore (MAS). The Code, which became fully effective in November 2023, introduces:

• Prohibitions of offering services to users aged 17 or less
• $2000 cap on credit amounts without credit checks
• Prohibitions on compounding interest and hidden fees
• Requirements for clear communication of terms
• Support for financially distressed users, including waiving late fees out of goodwill

An independent oversight committee would then be responsible for investigating suspected breaches of the Code by accredited BNPL providers. Accredited BNPL providers that breach the Code could lose their accreditation, leading to reputational damage.

While the code acts as a good starting ground for BNPL regulations, the codes lack any legal teeth as there are no risks of prosecution. In contrast, other forms of credit loans granted by financial institutions (via credit cards) or licensed moneylenders, are governed by the Banking Act 1970 and the Moneylenders Act 2008 respectively.

Australia and the United Kingdom Approach

Australia has classified BNPL service providers as Low Cost Credit Contracts (LCCCs) under the National Consumer Credit Protection Act 2009 and amended the existing bill to introduces obligations that will take effect from June 2025 such as:

• Holding an Australian Credit Licence (ACL): BNPL providers must obtain an ACL and operate under oversight by the Australian Securities and Investments Commission (ASIC).
• Conducting Affordability Assessments: Providers have responsible lending obligations (RLOs) and are required to assess a consumer’s ability to repay before offering credit.
• Pre-Contractual Disclosure: LCCC providers must provide consumers with clear information about the terms and conditions of the credit contract before it is entered into.
• Implementing Fee Caps: The legislation imposes limits on fees, including capping default fees at AUD 10 per month and account fees at AUD 200 in the first year, reducing to AUD 125 in subsequent years.
• Hardship Provisions: BNPL providers are required to have processes in place to assist consumers experiencing financial hardship, including options for repayment arrangements.
• Credit Reporting: Providers must report repayment histories to credit bureaus, allowing other credit facilities to ensure a consumer borrow prudently. impacting consumers’ credit scores and future borrowing capabilities.

The UK government has proposed a regulatory framework with legislation expected to be laid out in 2025, and take effect in 2026 requiring BNPL providers to:

• Affordability Checks: BNPL providers will be required to conduct robust affordability assessments before approving transactions, ensuring that consumers can manage repayments without accumulating unmanageable debt.
• Consumer Credit Act Protections: The new rules will extend protections similar to those offered by the Consumer Credit Act, including the right to complain to the Financial Ombudsman Service and access to redress mechanisms.
• Credit Reporting: BNPL lenders will need to report information to credit reference agencies, allowing consumers’ BNPL usage to be reflected in their credit files.
• Disclosure Requirements: Ensure that consumers receive clear and consistent information about the terms and conditions of their credit.
• Regulatory Oversight: BNPL providers will need to obtain authorization from the Financial Conduct Authority (FCA) to operate, subjecting them to ongoing supervision and compliance with the Financial Services and Markets Act 2000.

Should Singapore Move Towards Statutory Regulation?

Reasons for more stringent regulations:

1. Legal Certainty and Enforcement
   Unlike voluntary guidelines, statutory regulations carry legal force, providing consumers with greater certainty of recourse in the event of disputes or malpractice.
2. Protection for Vulnerable Groups
   Young consumers and gig economy workers are particularly susceptible to BNPL debt traps. Regulatory oversight would ensure stricter affordability checks and credit reporting to mitigate risk.

Reasons for the status quo:

1. Increased growth and innovation
   The voluntary code allows providers to innovate without being burdened by excessive compliance costs and red tape, which may stifle growth and deter new entrants in the fast-moving fintech space.
2. Measured Adoption
   BNPL is currently a relatively small share of consumer credit in Singapore (about 1-2%). Regulating prematurely would require tax monies and may be disproportionate to its current scale.
3. Existing full compliance of BNPL providers
   Despite the lack of a legal force, as of 4 February 2025, MAS has confirmed that there has been no breaches of the code of conduct, suggesting that BNPL providers are compliant and regulations may not yet be necessary.

Conclusion

BNPL services are here to stay, offering real benefits when used responsibly. However, without sufficient guardrails, they risk being quiet drivers of consumer debt, especially among those who lack financial literacy. Singapore’s current self-regulatory framework is a good start, but it would need to eventually evolve into more formal legislation to ensure stronger and more consistent consumer protection.