How upstarts & bigger players are jostling for ‘buy-now-pay-later’ pie in SE Asia

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When Singapore wealth fund GIC-backed buy-now-pay-later firm Affirm, led by PayPal co-founder Max Levchin, raised $1.2 billion in its IPO on Nasdaq in January, it was widely hailed as the first big tech IPO of 2021.

Affirm’s stellar market debut has shined the spotlight on the buy-now-pay-later or BNPL model that allows consumers to shop for even low-ticket items from S$100 on instalments.

Pioneered by Swedish e-commerce payment solutions platform Klarna, which is valued at $31-billion, the BNPL model is seen creating ripples across global markets, including SE Asia.

The size of the BNPL giants

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BNPL PlayerGMV (6 months ending Dec 30, 2020)Users (2020)
Klarna$31 billion87 million
Afterpay$7.5 billion (A$9.8 billion)13.1 million
Affirm$3.6 billion4.5 million
Source: Afterpay, Klarna, Affirm financial reports

What is driving the trend in Asia is a shift towards online retail and rising mobile payments adoption, accelerated by the disruptions caused by the COVID-19 crisis.

“BNPL is becoming a dominant theme within the payments landscape, whether you are someone that needs it for budgeting purposes, someone who sees it as a cash flow maximisation tool or a merchant seeing it as a customer acquisition tool,” according to Jason Cheong, who leads technology investing for private equity firm ICM.

“The move by Visa, Mastercard and PayPal to come into the same space is reflective of that,” he added.

As the model finds growing acceptance among millennials, Gen Zs and cash-strapped consumers, players in the BNPL space are seeing significant user traction and investor interest in SE Asia.

“BNPL is easy, convenient, responsible and also a very low-priced solution compared to some of the credit cards. It will be changing the way people are going to shop online and offline,” according to Vincent Veehof, managing director, AccelerAsia Ventures, an investor in BNPL startup hoolah.

An October 2020 consumer survey by Finder found that an estimated 1.1 million people, or 38% of the population in Singapore, have used the BNPL service. Besides the favourable economic conditions for BNPL, the median age of populations in most Southeast Asian countries is 30-40 years old, per research by PayPal.

This young and technologically savvy age group is disproportionately higher represented in BNPL usage and a potentially significant market, said Quan Yao Peh, research analyst (services & payments) at Euromonitor International. However, it is still too early to determine the success of BNPL in revolutionising the way we shop, added Peh.

Globally, BNPL is a booming market that is set to grow from $7.3 billion in 2019 to $33.6 billion in 2027 at a compound annual growth rate (CAGR) of 21.2 percent, per Coherent Market Insights estimates.

Early-movers

Singapore-based BNPL startups – hoolah, Atome, OctiFi and Rely – are seeking to cash in on the early-mover advantage in the market as they see user traction and heightened investor interest.

hoolah, set up in 2018, is currently in Singapore, Malaysia, Hong Kong and plans to further expand in the region. It raised an eight-figure sum in its Series A round last March led by Allectus Capital, a part of private equity firm ICM.

hoolah co-founder and CEO Stuart Thornton claims that the user base grew by 400% during 2020. Total transaction volumes grew over 1,500% in 2020, with top-line sales up over 800%.

Meanwhile, rival Atome, which was launched in December 2019, saw a 198x increase in monthly orders, a 71x surge in mobile traffic to merchant websites and a 22x rise in monthly app downloads in 2020.

Atome has operations across Southeast Asia, Hong Kong and China, and expanded into Indonesia last month. In December, online travel platform Agoda partnered with Atome to offer flexible payment options for bookings. It also entered a partnership with China-based digital payment solution provider AsiaPay to further its reach in the region.

Discussions are ongoing with merchants and partners for future alliances in the coming months, says Atome CEO David Chen.

Atome, a subsidiary of Singapore-based big data firm Advance Intelligence Group, draws support from its parent entity that has raised $136 million total in funding, with its latest Series C round in September 2019.

Other players include OctiFi that launched in September 2020 and is self-funded, and Rely, which has tied up with Razer’s fintech arm to serve the latter’s SE Asian merchants.

SE Asia has also seen the entry of a new player, Pace, founded by the former managing director of WeWork Southeast Asia and Korea Turochas “T” Fuad. It has raised a seven-figure seed round co-led by Vertex Ventures and Alpha JWC to grow its reach in Singapore, North Asia and the rest of Southeast Asia in 2021.

The BNPL players in Singapore

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BNPL StartupYear Of LaunchInvestorsFunding
hoolah2018Allectus Capital, Genting Ventures, iGlobe Partners, Accelerasia Ventures, Aletra Capital Partners, Maximilian Bittner (CEO of Vestiaire Collective), Tim Neville (APAC CEO of FNZ Group)Closed an eight-figure Series A investment round led by Allectus Capital in March 2020.
Atome2019-Atome has not raised any funding so far, but its parent company Advance Intelligence Group raised US$80 million in Series C funds in September 2019.
OctiFi2020-Has not raised any funding so far.
Rely2016Goldbell Financial ServicesRaised S$100 million from a debt financing round led by Goldbell Financial Services in December 2020.
Pace2021Alpha JWC Ventures, Vertex VenturesRaised a seven-figure seed round co-led by Vertex Ventures and Alpha JWC.

Superapps, payments firms join fray

Alongside newbies, SE Asian tech giants have also jumped on the BNPL bandwagon offering the service as an add-on to their myriad offerings. Ride-hailing giant Grab has a BNPL option since 2019 and the e-commerce platform Shopee introduced SPayLater through its app in January this year.

Grab’s rival GoJek offers a similar product in its home country where others like Kredivo and Traveloka have been providing BNPL options. Even Afterpay has taken note of SE Asia’s potential and made its move by acquiring Indonesia-focused BNPL provider EmpatKali.

Credit card networks and payment firms have responded to the competition by launching their own BNPL options.

The BNPL startups in SE Asia

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BNPL Startup*MarketsStageInvestorsFunding
AkulakuIndonesia, Malaysia, The Philippines, VietnamSeries DDCM Ventures, IDG Capital, Arbor Ventures, Welight Capital, Qiming Venture Partners, FinUp Finance Technology Group, Blue Sky Alternative Investments, Sequoia Capital India, China Growth Capital, Eight Roads Ventures, Legend Capital, Shunwei Capital Partners and Ant Financial Services Group$218 million
AtomeIndonesia, Malaysia, The Philippines, Singapore, Vietnam-Atome has not raised any funding so far, but its parent company Advance Intelligence Group raised US$80 million in Series C funds in September 2019.-
Home CreditIndonesia, The Philippines---
Hoolah Malaysia, SingaporeSeries AAllectus Capital, Genting Ventures, iGlobe Partners, Accelerasia Ventures, Aletra Capital Partners, Maximilian Bittner (CEO of Vestiaire Collective), Tim Neville (APAC CEO of FNZ Group) Eight-figure sum
OrienteIndonesia, The PhilippinesDebtSilverhorn Group, Wix, Lee Ka Kit, Mark Tluszcz, JG Summit Holdings, Sinar Mas Digital Ventures, Berjaya, BlackPine$175 million
PaceMalaysia, Singapore, ThailandSeedAlpha JWC Ventures, Vertex VenturesSeven-figure sum
RelyMalaysia, SingaporeDebtGoldbell Financial ServicesS$100 million
SplitMalaysia, SingaporeSeed500 Startups, Entrepreneur First-
SplititIndonesia, Malaysia, The Philippines, ThailandPost-IPO DebtGoldman Sachs Bank USA, Woodson Capital Management, Igor Ryabenkiy, PRYTEK, Simpel$264.6 million
*Operates in 2 or more markets
**Not an exhaustive list of players

Mastercard and Pine Labs are set to launch their integrated BNPL solution in five Southeast Asian markets, namely Thailand, the Philippines, Vietnam, Indonesia and Singapore.

Pine Labs currently processes annual payments worth $30 billion, serving about 150,000 merchants across 450,000 network points in India, SE Asia and the Middle East.

“We are quite upbeat about the potential of the BNPL business in SE Asia and along with Mastercard, we will do really well in the region,” said Dheeraj Chowdhry, the chief business officer at Qwikcilver, a Pine Labs subsidiary. He further added that strategic collaborations such as the one of Mastercard and Pine Labs will be the key to growth in the BNPL space.

Notwithstanding the competition from established players, Atome CEO David Chen is not unduly fazed by the entry of bigger strategic players. “Banks have much stricter requirements on the type of transactions and the merchants they work with. Credit cards and instalment payment plans are for larger transactions, for example, those from electronics shops. On the other hand, our transaction sizes are small and we serve the mass market, a bunch of different types of retailers,” he reasons.

The lure of BNPL

The current economic climate is ideal for the BNPL model as it reduces the consumer’s psychological barrier to purchase and reward themselves without feeling the significant pinch, according to Quan Yao Peh of Euromonitor International.

“BNPL helps to defray your immediate costs,” said Atome merchant IUIGA co-founder Jaslyn Chan, who is also an active BNPL user. “It frees up my capacity to spend on other things within my limits for this month as well as the second and third months,” she added.

From a user perspective, Chen explains, the perks of BNPL are that “it is cheaper to use compared to credit cards because the latter charges very high, late repayment fees.” The late fee is often a flat S$100, regardless of the size of the bill and the interest rate is over 20%. On the other hand, if you missed your BNPL payment, the administrative fee ranges from S$20 to a maximum of S$60 per transaction with no additional interest.

Furthermore, brick-and-mortar retailers have adopted the omnichannel mode by setting up an online presence during COVID-19, leading to a boost in e-commerce. “This provides a conducive environment and potential merchant partners for BNPL providers to integrate their services and reach target consumers,” said Peh.

Being a service offered both in-store as well as via digital checkout, BNPL, therefore, has the potential to reduce check-out abandonment and increase overall purchase value, said Yashan Cama, commercial director, Blackbox Research.

Illustrating this trend, Chan said, IUIGA, a lifestyle retailer, saw a 15% increase in online sales since the adoption of BNPL. “It has helped our sales greatly, simply because our ABS (average basket size) online is between S$180-S$230.” For offline stores, the ABS used to be S$30-S$50. Since implementing BNPL in offline stores, IUIGA has seen the number grow over 100% to S$80-S$100.

“BNPL brings me more traffic, more orders, higher GMV and ABS,” she added.

Hurdles along the way

Lack of a seamless user experience at the point of sale, a vast unbanked population in SE Asia, concerns surrounding consumer debt and regulatory scrutiny are some of the hurdles the sector faces.

“The leaders and laggards in the BNPL space will be determined by how seamlessly they make the transaction process not just for the customers but for the merchants executing it from the PoS device,” said Chowdhry.

Players like GrabPay and GoPay are strongly positioned to integrate BNPL services with their digital wallets, Peh says.

Furthermore, there is also the question of credit card penetration in regional markets. In Indonesia, for instance, credit card penetration is just 3% and only 7 million people own one.

As a result, Atome has been offering many different payment methods such as bank transfers, ATMs, e-wallets and convenience stores in Indonesia, Chen said.

Meanwhile, hoolah is planning to find alternative modes of payments for the largely unbanked countries in SE Asia. “We are looking at partnerships where we can add additional payment options, domestically in each market. It could be digital wallets, any other payment option that the consumer is asking for,” said Thornton.

Essentially, there is little difference between BNPL and credit cards but that has not stopped consumers from exploring the former option.

The growing acceptance could also lead to mounting consumer debt and invite regulatory scrutiny, industry players observe. “BNPL credit risk assessments may be less comprehensive than that of traditional banks,” Peh added.

As BNPL grows, startups will require to show greater transparency and stringency in extending credit to consumers.

Thornton says that hoolah’s business model is based on making sure that people don’t overspend nor get into debt. “For example, if we see a consumer starting to show signs of overspending, we will actually reject transactions,” he said.

He also welcomes regulations from authorities. “I think we were well prepared. We have done a lot of homework and invested significantly, in all those different aspects because we recognise and respect this is an important part of running a fintech or even a retail business,” he said.

Chen adds, “we have active conversations with the regulators in every country that we operate in, not only in Singapore. I believe such regulations are good for the health of the market.”

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.