Responsible Lending with BNPL – OMFIF DMI Podcast

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Wenbin Wong, Head of GrabFin Singapore, joined OMFIF’s Digital Monetary Institute podcast to discuss responsible lending through ‘buy now, pay later’, with Lewis McLellan, editor of the Digital Monetary Institute.

Links to listen to the full podcast:


Transcript of podcast:

SPEAKERS

Wenbin Wong (Grab), Lewis McLellan

Lewis McLellan  00:00

welcome to the podcast. Hello, and welcome to the onset podcast. My name is Lewis McLellan and the editor for the digital monetary institute here OMFIF. Today we’re going to be discussing the topic of buy now pay later or BNPL. And how to regulate safely a market that has grown rapidly over the past couple of years, thanks in part to some changes in consumer behavior around how people spend money online. It’s become a very popular, very rapidly growing new asset class and as a form of consumer lending. It’s very important that this is regulated safely. And we’ve seen a lot of interest around the world and developing ways to do this. today to discuss this topic. I’m joined by Wenbin Wong, head of GrabFin Singapore. Hey Wenbin.

 

Wenbin Wong (Grab)  00:55

Hi, Lewis. Thanks for having me on this podcast. 

 

Lewis McLellan  00:59

My pleasure. Thanks for being here. Can you tell us a little bit more about grab your involvement into the NPL industry as well? 

 

Wenbin Wong (Grab)  01:07

Sure. Well, I think let me start off by introducing Greg, and the region in which we operate it. First and foremost, Grab is a marketplace. And we are live across eight markets in Southeast Asia. On the Grab marketplace, or the superapp  that we provide to our users, we primarily offer daily essential services for all our consumers, merchant, partners and delivery partners in this region. So across right hailing food, and grocery deliveries, and financial services, these are the core pillars of our business and the use cases that we offer. Our goal is very clear and simple to create economic empowerment for everyone.

So specific to our financial offerings, we are committed to drive financial inclusion for the underbanked in Singapore, and across the wider region. So that’s our DNA. And that’s where GrabFin’s raise on that comes in.  So about GrabFin, while southeast Asia has seen significant growth over the last decade, and we still see over six and 10, Southeast Asians remaining underbanked or unbanked today. And we believe that we can accelerate empowerment through providing accessibility to basic financial services, through technology and through surgical usage of data and and the services that we provide for our users.

So more Southeast Asians can then have better access and control their finances. The core of our product philosophy is to deliver simple, connected, flexible and rewarding experiences for our users. So this covers a wide spectrum of financial services, including GrabPay, and buy now pay later. We started GrabPayin 2017, to help our driver partners and consumers transact more seamlessly, and to reduce disputes, and to make just ride-hailing and transportation safe.

Now, today, fast forward five years GrabPay is the leading e wallet in Southeast Asia. So we’ve been on a journey to make payments and services more seamless, safe and convenient for everyone. But that’s just the beginning.  With the data insights that we’ve collected with the transaction, insights that we’ve collected, we’ve been able to understand better the market dynamics and the needs of our users. So we introduced buy now pay later to our users in 2019 to allow them the flexibility of purchasing items into four interest free monthly payments or pay all the following month. That’s how we got started into this space.

 

Lewis McLellan  04:01

It’s very exciting. Yeah, it’s, it’s really interesting to think about buy now pay later as a tool of economic empowerment and independence. Can you talk a little bit about the your work in BNPL in a little more detail. I mean, obviously, this is this is a form of lending. So can you talk a little bit about, yeah, how that works for you guys in relation to your balance sheet and the sort of risks that learning excels? 

 

Wenbin Wong (Grab)  04:33

Yeah, so I think first and foremost, we don’t see buy now pay later as a standalone service. It operates and complements our offerings in conjunction with other payment methods and financial services that we provide. So for example, it stands beside the payment methods that we support across all our local markets. In Singapore, we have the Singapore QR, in Malaysia we have to Duit Now QR standards. In Singapore, We’ve also partnered with MasterCard to issue a prepaid digital virtual card for users so that you can then expand the acceptance and ubiquity of GrabPay across all the millions of acceptance points around the world. So that’s an important context to see where how we had, how we see buy now pay later.

So zooming into Buy now pay later, we launched it in 2019. And that our approach was slightly different from other providers, we had focused on allowing our users to have more flexibility in paying for the transport and food delivery services on Grab. So we started out our buy now pay later, or Grab PayLater offering with transport and food delivery services. Our users liked it for the convenience, the flexibility, and the control it gave them on managing overall spend, and consolidating expenses. It wasn’t really a credit product, it was seen more as a convenience product, allowing them to then manage cash flow, has more visibility on overall spent on the platform. And this was during the time of the COVID pandemic restrictions. And then during that time, you know, there were a lot a lot of spend coming online, a lot of spend on food delivery on groceries, so these help our users.

Since then, we’ve then expanded the offering outside of the platform. And again, during the period of COVID lockdown, we’ve seen a steady increase of grant users turning to the service to pay for a wide range of products, things like your you know home office setup, electronic products. These help our users contextually to be able to use credit when they need it and on the right items anyone to purchase.  And with the advent and, you know, uptake and rapid adoption of buy now pay later and pay later by Grab, we see the need to create a trusted BNPL service that is safe for consumers to use, avoiding the downside or risk of a debt spiral. At the same time useful for our merchant partners, the sellers, to be able to access more consumers, especially at a time when they can’t sell in person.

So as a tech platform, we rely heavily on data insights to help us understand user behavior better to protect the interests from potential risks.  So we with our users, we have put in place certain guardrails: a qualifying assessment of our consumers before they are even offered the service. Individually determined needs to minimize the risk of overspending tailored to their usage and tailored to their profile. Policies, and principles to deter debt spirals, such as when we miss a payment, we are not compounding interest rates, such as an undertaking not to pursue bankruptcy or legal recourse on our users as an if they end up having to miss repayments. So we want to make sure that we are as transparent as possible with our BNPL offerings. And we see that there are certain things in which we can improve upon from how credit is being disbursed to our users. And we want to use those learnings and those insights to to improve the experience for everyone.

 

Lewis McLellan  08:40

Yeah, fantastic. It’s really interesting to see the speed with which, with which, this new services has been adopted, it seems to have been something that people were really wanting. So can you talk a little bit about why that is and the extent to which it’s changed consumer behavior in your jurisdiction already?

 

Wenbin Wong (Grab)  09:03

Yeah, I’ll share a little bit more about how it has shifted over the last 12 to 18 months, we launched our PayLater  for ecommerce platforms and retailers 18 months ago, and that was at the height of the pandemic restrictions. So with with just a base of users that were primarily transacting with Grab’s transport and delivery services, we’ve seen our users at least triple in terms of their off platform usage. Off platform meaning on ecommerce, brands and retailers. We’ve also continued to see rapid adoption of buy now pay later services in Singapore and across the region. We are just now launching our in-store offering for PayLater in Singapore. And that also will be followed by Malaysia in the coming months.  Having said that, it’s still very early days, you know, at a recent industry sharing, we’ve gotten data to say that, buy now pay later transactions still amount to less than 1% of overall credit transactions or digital payment transactions in Singapore alone. 

 

Lewis McLellan  10:30

So yes, certainly still continued room for growth there. You mentioned before, you know, the need for sort of responsible standards and so on. And I think it’s something that, well, perhaps perhaps not so much in Singapore, but certainly around the world. Regulators are looking very carefully at this industry to ensure that you players, new operators are behaving responsibly and adhering to appropriate standards. Can you talk a little bit  I understand there’s a code of conduct for BNPL Singapore. Can you talk a little bit about how that was developed and how you expect it to set standards in the industry? 

 

Wenbin Wong (Grab)  11:10

Yes, and how the code came to be was also because we felt that the industry had to take a more proactive stance, with the rapid adoption of buy now pay later services in Singapore and across the region, is we’ve seen the benefits, and we’ve seen how it can improve customer experiences and merchant sales. But the increased popularity, popularity of such services do come with a healthy dose of skepticism, and concerns over misuse of the service. So that’s how we wanted to approach the code.

And that’s where as an industry, we think it is important that we standardize and codify a set of principles in which then we can protect the interests of our players within an ecosystem, and support the development of the industry at large. And we’ve been working very closely with the relevant authorities, the regulators, the consumer protection groups and the interest groups to make sure that the services that we provide the broader industry we provide serves the need of the market. Specific to Grab, we contributed and share our know-how and deep understanding of our consumers to contribute to to this development of the code, we focus on the consumer protection aspects. And we believe that a code is a step in the right direction.

So in providing the guidance to both service providers like ourselves, consumers, and also in engendering trust, that at least we are starting to codify a framework. So I’d like to touch on some specific features of the code, which are very relevant and in which we make sure that it’s consumer facing and easily understood. So firstly, one of the recommendation of the code is to introduce a trustmark, in which our BNPL providers need to go through an accreditation process to make sure that they are all we’re all adhering to the conduct statements and also providing the services transparently. And with the trust mark, it helps and for consumers to be able to identify which of these, which of the providers are able to invest in basic principles and capabilities to protect their interests.

We’ve also outlined clear advertising guidelines so as not to mislead consumers into overspending, into believing that they can spend outside of their means. And we prohibit aggressive solicitation, so that no consumer feels like they are being coerced into buying something so that they don’t feel misled into making a purchase, which are not necessary for them. So these are some fundamental hygiene features that we believe that all players in the industry will need to comply with. So as an industry, we do believe and acknowledge that this may be early steps. But it is important in creating such a framework with these principles to protect the interests of our consumers, merchants and ultimately, the service providers will be able to grow and build upon these foundations.

 

Lewis McLellan  14:34

Fantastic. Okay, great. Well, I hope to see to see something similar around the world. I mean, have you are you aware of similar records and other jurisdictions to to establish some codes for the industry to operate.

 

Wenbin Wong (Grab)  14:50

As part of the code development we referenced heavily from the Australian practice, where they’ve also issued similar industry-led conduct, code. We’ve also drew references from the UK learnings and experiences, especially on the introduction of centralized credit, bureau, credit sharing bureau in which BNPL providers are required to contribute to a centralized platform. 

 

Lewis McLellan  15:26

It’s been really interesting to watch credit intermediation activities outside of traditional banking growing so quickly, can you talk a little bit about why this business model is growing so fast?

 

Wenbin Wong (Grab)  15:38

Yes, and there are four mega trends behind the growth of such activities. First is the proliferation of smartphone adoption, and also the maturing and improvements to digital and data infrastructure across the region.  Second, is how we use the data in the context of our users. So with Grab, for example, we have the ecosystem and the use cases and understanding of our users. So we are able to put credit or cash or working capital in the hands of our passengers, our drivers, our delivery partners when they need it.  Third, with personalization, at scale, we are then able to call different credit scores based on our users usage history on the platform. And this helps to make sure that we can then broaden access to services.  And finally, access to last mile data, where and when the usage is being performed or transactions are being performed, down to the merchant or the spend.

And because of the insights we have on transactions, we are then able to provide access to financial services for for individuals who hitherto may be underserved. So for example, for consumers, this allows them to offer payment credit options contextualized down to the item level that they are interested to buy, and personalized to their credit history. For example, like a standing desk for the home office or laptop for school project. For drivers, we are able to offer micro loans with daily repayment options to avoid debt spiral and to afford life’s necessities manage their cash flow for you know, school fees for their children laptops for the family cash flow for medical bills, or insurance premiums. And for merchants, targeted and tailored working capital support based on the earnings, based on the trade flow, to help them grow their business in a sustainable way. And being on our platform, they are then able to to expand their services and expand their sales to our consumers who are also in the same marketplace.

And we believe that if shall be guided by, you know, principles of fairness, of transparency, and inclusivity for consumer protection, and which is also manifested in the BNPL code of conduct. And we believe that such statements on fair dealings are enshrined in the code to make sure that we don’t… we have the right safeguards for our consumers. It also includes make sure ensures that the MPR advertised advertisements are clear and not misleading, and a commitment by firms who sign up to the code to not pursue bankruptcy for these proceedings or consumers. So these are some of the things that we subscribe to.

 

Lewis McLellan  18:46

Fantastic, yeah, it’s it’s really interesting way the people are finding new ways to make use of the data collected and ecommerce to you know, to provide credit and to inform better, better consumer choices and so on. Yeah, really interesting process. So I wanted to come back to the point you raised at the start about Grab as a means of, you know, economic empowerment for underserved sections of the population. And, you know, BNPL, in that context is, is a really important new channel of credit for people that often don’t have access to other channels. But the I guess one of the concerns from from regulators perspective is that these underserved populations are also typically the least well equipped to make informed decisions and are in vulnerable situations, often economically speaking. So can you talk a little bit about the provisions the Code of Conduct makes to ensure that these groups aren’t exploited and the lending is a positive addition to the options available to them?

 

Wenbin Wong (Grab)  20:00

Sure. Two parts of this question as to one specific to the code and the provisions that has been put in place. And more broadly speaking, how does Grab approach the issues and challenges that you’ve just highlighted. 

So firstly, on the code itself. There are very clear caps that are put in place for for borrowers or users of BNPL services that require that are required of service providers. For example, if a user is not, has not provided income statement for means testing or credit assessment, the maximum limit that can be availed to the user is 2000 Singapore dollars. So until the user is able to provide income statement or proxy of income for assessment, this cannot be breached. 

Secondly, all of the service providers are required to share credit data on a centralized service across all BNPL providers who are who have sign up to the code. So we will be able to assess if a user has has made good or defaulted on other services. So that then we do not over over extend on the on the credit that’s being disbursed.  So these are just two features and provisions within the code that helps to protect against this.

At the same time it the code also, or providers who have signed up to the code have also committed to not pursue litigation or bankruptcy proceedings against any of the users who have defaulted or not been able to make their repayments. So these are three provisions put in place. As for Grab , I think a large part of what we do is built on the data set that we’ve accumulated on all our users.

And we want to go further upstream, not only when the user has found he, he or herself in a, in a situation where they cannot manage the expense, but move further upstream. And this is based on our understanding of the users.  So firstly, we don’t allow all users to activate PayLater by default. So we we go on a whitelist approach and our users are pre qualified, based on user behavior, based on usage, based on other signals that we gather. Secondly, we design safeguards to make sure that our users are familiar with the risks. So as part of the onboarding, some of the risks of overspending and debt spiral is put up front of our users. We also have inbuilt features to help consumers and users avoid missing payments. So this is important, because a lot of times our users have the means to repay. And we make sure that the repayment experience is similar, straightforward and convenient. We have policies to deter debt spirals. So anytime a repayment is missed, the service is paused. And there is no compounding interest. So if a user decides that he or she would like to reactivate a service, a $10 administrative fee is charge. 

 

Lewis McLellan  23:46

Interesting. Okay, I see. Um, so one of the one of the issues around buy now pay later the regulators are concerned about is not just the making sure that individuals are treated fairly, but also that it’s a rapidly growing new lending sector and, you know, the retail credit exposure, and they’re concerned about financial stability risks, or, I guess, the sort of macro risks there. And I understand that, you know, responsible lending practices are part of ensuring that that people pay goes back, but I guess there are questions like you can pause your BNPL service, but presumably, across the industry, they might be able to still be building up more debt via other services. So, can you talk a little bit about the the approach to ensuring that that that level of stability as well.

 

Wenbin Wong (Grab)  24:43

So I think, for me, this is a fairly short response, in the sense that we are still in the very early days of BNPL adoption, relative to overall credit, unsecured credit, disbursement in Singapore BNPL is still at 1% or below 1%. So in terms of the broader systemic risks that that such, you know, defaults could pose to, to the to financial system, it is still very much under control.  Having said that we are closely working with the regulators, all of the providers who have signed up to the Code of Conduct are in close touch with the regulators to make sure that we continue to track the usage, continue to track default continue to track credit behavior of the service.

 

Lewis McLellan  25:38

Okay, interesting. And can you talk a little bit about how the code of conduct was developed and when you guys got involved in the process.

 

Wenbin Wong (Grab)  25:46

So about 10 to 12, firms participated and contributed to the Code of Conduct Working Group. Grab was one of the founding contributors together with two other providers, similar lead market leaders in Singapore. And we developed it in conjunction with the Singapore FinTech Association as sort of like the Project Management Office helping to steer the broader conversation.

 

Lewis McLellan  26:16

And I think we’ll leave it there. So thank you very much Wenbin. Really, really interesting discussion is the BNPL topic is a fascinating one. And, and as you say, although it’s growing rapidly, there’s certainly a lot more room for growth to come and an area that regulators are keeping a very close eye on to ensure that it fulfills its potential as a means of providing credit to traditionally underserved groups and improving consumer choices, but without creating a new risk in a sort of new new branch and retail retail credit provision. So yeah, thanks very much for joining me, Wenbin. Great to have you.

 

Wenbin Wong (Grab)  26:59

Thanks for having me. 

 

Lewis McLellan  27:01

And hopefully, we’ll we’ll see you again. So thank you also for listening. Thanks to our audience. Do remember to subscribe. We’re available on Spotify and Pod Bean and on demand on our website. And please do check out the rest of the website for details of our upcoming events and reports as well. Thanks very much for listening. Goodbye.

 

27:24

Thank you for listening to the OMFIF podcast.

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