Paylater, also called BNPL (Buy-Now-Pay-Later), is becoming a common phenomenon in various countries. Its role is like a credit card, allowing anyone to make payments to merchants via the installment method. Interestingly, paylater is not only limited to e-commerce but can also reach offline retail outlets.
In Southeast Asia, the popularity of paylater is driven by the relatively low penetration of credit cards, among other things. According to BCG data, Singapore leads the way in credit card penetration with an 85% adoption rate, followed by Thailand at 30%, Vietnam at 11%, and less than 6% in Indonesia.
The paylater product has started developing by serving various consumer segments. The following article will discuss the types of paylater services and the use of paylater, especially for businesses.
Paylater service type
According to the DailySocial.id report, in terms of usability and service users, paylater platforms are divided into several categories, including:
- Paylater for consumers; is a paylater platform commonly used by the public to get installment payment options with a particular tenor on e-commerce platforms or online marketplaces. This service is precisely integrated into the existing payment services on each platform. These services include Akulaku, Indodana, Kredivo, GoPaylater, and so on.
- Paylater for business; is a paylater platform that companies can use for the procurement process, generally through a collaboration between fintech platforms and certain SaaS services. The platforms result from the cooperation between various companies, for example, Andalin and Investree for installment payment services for logistics procurement, Warung Pintar and Cicil for procurement services for stall selling materials, and so on.
- Paylater in offline retail; is a paylater platform that also serves payments for offline retail, usually at outlets located in large shopping centers. The payment mechanism is the same as electronic money using a QR code scan. Atome is an example of a paylater player entering this realm.
- Co-branded Paylater; is a paylater service in collaboration with other financial products. This service can not only be used via an application; it also has a physical form like a credit card. Paylater cards initiated by Traveloka Paylater and BRI are an example of this.
Paylater use cases for consumers and businesses
Paylater services have a lot of room for growth. According to eMarketer data, 75% of paylater audiences are Gen Z and millennials, especially those who have started/have reached their productive age. Indonesia is entering a demographic bonus, where people in that age range dominate the market share. Another survey from C+R Research shows that the majority of paylater is used to purchase fashion products (47%), electronics (44%), and furniture (32%). Although other products also have user segments, as shown below by percentage.
For businesses, using paylater increases user retention by providing a complete range of payment options. On the other hand, the business model implemented by the paylater will not interfere with their cash flow. This is because every purchase will be paid in full by the service provider to the merchant owner — then the consumer makes an installment payment or returns it to the service provider.
As for consumers, some of the paylater uses that can be obtained include:
- Paylater as an easy payment method with native integration between platforms.
- Flexibility with affordable tenor and installment options.
- Some paylater provide loans with low-interest rates, even 0%, for specific mechanisms.
- Fast approval process thanks to eKYC technology and agile instant verification.
Paylater business process
Regarding business processes, paylater can be used through consumer applications such as e-commerce, OTA, ride-hailing, or as a standalone application provided by the paylater provider. There are several stages that users will encounter when they want to use the service.
For the initial process, consumers will be required to do eKYC by uploading several files and filling out a series of forms. First, they will determine the goods or types of financing they want to apply for. Then, when entering the payment method, end consumers can choose the paylater option according to the available provider.
The credit scoring process for loan approval is carried out through a data-sharing mechanism — for example, in OTA, the paylater provider will look at their purchase history to determine their purchasing power and payment ability. However, service providers are also exploring other data for alternative credit scoring.
After the process is complete and the application is approved, the user can continue paying with the paylater by specifying the desired installment tenor (number of months). Then they will make regular installment payments for the purchases of goods that have been completed.
On the consumer application side, developers can connect the payment API owned by the paylater provider to their payment module.
Open Finance for paylater providers
To win the market, every paylater provider must provide ideal services — such as having a fast process and low costs. Several Open Finance features can be relied on to help them on the technology side of fintech. It could be eKYC services to assist consumer onboarding, Alternative Credit Scoring services in assisting in feasibility analysis and approvals, to Recurring Payments for installment payment automation.
Finantier is one of the organizers of Open Finance in Southeast Asia. Finantier's vision is to provide a layer of fintech infrastructure to help improve financial inclusion in Southeast Asia. Its various features can be applied to multiple use cases. In addition to being registered with the regulator, Finantier is also committed to helping fintech provide secure and conditional services with data protection and privacy through a series of technical tests and certifications that have been successfully obtained.