‘Buy now, pay later’ code of conduct launched to protect consumers against debt accumulation

SINGAPORE: Customers will not be able to chalk up more than S$2,000 in outstanding payments with a “buy now, pay later” (BNPL) provider, unless they pass an additional credit assessment which will consider details such as income and credit information shared across all BNPL providers.

Customers will also be suspended from making further BNPL purchases once a payment is overdue.

These are part of a code of conduct announced on Thursday (Oct 20) to protect consumers in Singapore against over-indebtedness amid a growing BNPL industry.

BNPL is a payment service that allows payment for purchases over time. It differs from usual instalment plans by enabling one to split the cost for small-ticket everyday items – from a meal at a restaurant to a new dress – at zero interest, and without having to own a credit card.

The new code, developed by a working group led by the Singapore FinTech Association (SFA), states that it recognises the “transformative use” of BNPL, especially for the under-served and the under-banked.

It hopes to promote best practices to ensure that BNPL offerings continue to “benefit” Singapore.

The working group was formed by SFA in March under the guidance of the Monetary Authority of Singapore (MAS). Members include BNPL providers like Atome, Grab Financial Group and ShopBack.

Apart from creditworthiness safeguards, the new code lays out guidelines for BNPL providers in other areas such as ethical marketing practices and allowing consumers to voluntarily exclude themselves from such services.

Providers must also be fair and transparent when it comes to their fees. For example, BNPL firms will cap all fees, including late fees and other charges, and not charge compounding interest. Fee disclosures must be made to customers in a clear manner.

Consumers are also entitled to make full repayment at any time, without early repayment fees.

BNPL providers will also consider extending “hardship assistance” to customers facing financial hardship, and work out a “mutually acceptable” payment arrangement. During this time, customers will not be allowed to make further transactions. 

Providers will also commit to not initiating bankruptcy proceedings against their customers.

To encourage adoption and compliance with the new code, BNPL providers will be required to undergo an audit and accreditation process, which will allow them to display an accredited trustmark indicating compliance with the code.

The next phase of the code’s roll-out will include the setting up of a credit information sharing bureau, completion of the accreditation process and award of the trustmark to accredited BNPL providers.

This is expected to be completed in late 2023.