The paylater application has gained considerable growth in Indonesia lately. The amount of paylater application enthusiasts in Indonesia has increased by around 45% in the past year. These are according to a report published by SurveySensum in 2022. Of the 300 e-commerce users surveyed, 55% have used paylater as a payment method.
The increasing adoption of paylater applications is based on several reasons. First, the paylater business ecosystem in Indonesia has become more mature. There are dozens of fintech companies that provide various similar solutions nowadays.
Secondly, paylater applications have been integrated into various digital services with a high consumer base, such as e-commerce, online travel, OTT, e-learning, etc. And last, credit cards, which are usually used for gradual payments in digital services, have low penetration.
Data from Bank Indonesia shows that as of September 2021, the number of credit cards in Indonesia was only around 16.5 million. This means that the new penetration rate is only about 6% of the total population.
What is the Paylater app?
The paylater application, often called Buy-Now-Pay-Later (BNPL), is a type of short-term financing that allows consumers to make purchases and pay for them in the future. The payment can be paid in installments one or more times monthly. Along with its development, paylater application can also be used in many offline merchants, which replaces the credit card function.
Paylater is different from fintech lending. In the business model, there are several fundamental differences, as follows:
According to the reports by DailySocial.id, paylater application mechanisms consist of two methods. The first is called a "Standalone App," a service used through a unique application developed for paylater transactions. The purchase and payment process takes place in that particular app.
The second type is called an "Embedded App," where the paylater service is attached to specific consumer applications. The users are not required to install a particular phone application because it is already integrated with the backend.
Like financing services in general, to use the paylater application, the consumer must go through stages. Starting from the registration process, then eKYC, to the credit scoring.
The Paylater Application Ecosystem in Indonesia
With enormous growth opportunities, some players are trying to accommodate those needs. According to Research and Market reports, the market value of paylater services in Indonesia has reached $1.5 billion in 2021 and will experience continuous growth up to $9.2 billion in 2028 with a CAGR of 29.2%. Here is a list of developer companies of paylater applications in Indonesia:
Interestingly, some companies are the owners of consumer platforms—for example, Gojek through Gopaylater, Shopee through SPaylater, and Traveloka through Paylater.
The Role of Open Finance for Paylater Developers
Amid market opportunities and the great adoption of paylater applications in Indonesia, there are several challenges that platform organizers still encounter. These challenges include:
- Educate new users. Not all people understand how it works and the consequences obtained when utilizing paylater to facilitate their payment.
- The Consumer Onboarding Process. When a user registers, the app needs a verification process that must be completed instantly to maintain the user experience.
- Customer Quality Assurance. A special mechanism is needed to conduct a creditworthiness assessment, especially to target new people who were previously classified as unbankable.
- Facilitate the payment process. This is needed to simplify the payment process, especially for financing services with a longer loan duration.
There are several strategies that service providers can use to mitigate these problems. One of them is improving their technological infrastructure. Open Finance can play a role in making it easy for application developers to add some new features.
For example, to improve customer quality assurance. They can take advantage of Open Finance Services with Alternative Credit Scoring features. This allows them to manage alternative data from prospective customers for credit assessment - such as credit consumption data, PPOB payments, and so on. Finantier is one of the organizers of Open Finance that can do that. In addition to the rich features, Finantier Credit Scoring has also been registered with the Financial Services Authority in the Digital Financial Innovation Cluster.