Buy Now, Pay Later Seen to Contribute More to Economic Growth
"Buy now, pay later" (BNPL) services are here to stay. The digital payment method, gaining more popularity across the globe, is seen to make significant contributions to the Philippine economy, paving the way for more sales in companies.
A recent study from financial services provider UnaCash showed the BNPL market is likely to contribute roughly 6.7 percent in gross merchandise value (GMV) to the country’s digital economy this year.
“Our latest findings suggest that the Philippines’ BNPL market is experiencing moderate yet stable progress—affirming its growing role in spurring economic growth,” UnaCash product head Erwin Ocampo said. “We are witnessing a notable shift in consumer behavior, where there is a consistent rise in patronage for this mode of financing.”
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The premise of BNPL is simple: it allows consumers to buy products and services without having to commit to full payments upfront. Think credit card, except you may split your payments into installments for three months or longer, and with little to no interest at all. Requiring only soft background checks, it’s a pretty easy and surefire way to access credit plans without incurring additional costs.
There’s no question as to why it’s getting more popular in the Philippines, as obtaining loans continues to be a sticking point in the local financial landscape.
“Amid economic pressures, we believe that the increasing adoption of BNPL services is reflective of Filipinos’ view of it as a convenient way of managing their spending habits,” said Ocampo. “While consumers are still wary of rising commodity prices and less optimistic about their finances this year, financing options like BNPL remain great tools for making big-ticket purchases.”
In April, research from the Bangko Sentral ng Pilipinas (BSP) revealed consumer sentiment improved in the first quarter of 2024, with consumers becoming more confident about spending on large purchases in the next 12 months.
The projected figure for the year is higher than the actual 4.88 percent and 4.19 percent in 2023 and 2022, respectively. GMV refers to the total value of goods and services sold over a certain period through a customer-to-customer exchange site. To come up with the forecast, UnaCash compared the volume of the local BNPL market between 2020 and 2023 to the growth rate of the Philippine digital economy during the same period.
The report said BNPL’s impact on the digital economy, which it regarded as “positive,” is evident in how businesses, particularly micro, small, and medium enterprises (MSMEs) have benefited from the growing demand for the service. By making the payment scheme available to their customers, they are “enhancing their competitiveness and contributing to the overall digital economic landscape.”
“BNPL acts as a crucial tool for e-commerce businesses, increasing average order values,” said UnaCash. “The growing [e-commerce] landscape is significantly intertwined with the growth of BNPL. Spending in the segment is projected to increase nine times by 2026 from 2021.”
An earlier report from TransUnion showed the demand for BNPL in the Philippines is comprised mostly of young adults. Generation Z (aged 18 to 26) accounted for the majority (81 percent) of those familiar with the payment method. 65 percent of these consumers have made at least one BNPL transaction in the past year, an eight-percent increase from 2023, the highest across generations. The primary reason behind Gen Z consumers' interest in the service is the easiness of applying for loans.
In 2022, global research firm PYMNTS also projected BNPL to expand until 2027, with preference stemming from the younger generation. This is said to be propelled by the fact that they have watched their parents struggle with credit card debt during the economic recession in 2008. Hence, it is more likely that many of these consumers are turning to BNPL, a more affordable and convenient lending option, instead of credit cards.
The most popular BNPL platforms in the Philippines include BillEase, Atome, TendoPay, Cashalo PayLater, and Home Credit; as well as those provided by e-commerce platforms, such as Shopee SPayLater and LazPayLater.
“[BNPL] fosters trust in digital payment methods,” UnaCash said. “Filipinos perceive [it] as a ‘time-tested’ financing service and budget management tool. This leads to further growth in digital payments, which eventually fuels the digital economy.”
Government numbers showed the Philippine digital economy amounted to P2.05 trillion in 2023, up by 7.7 percent from the year prior. This contributed 8.4 percent to the country’s gross domestic product (GDP). The annual growth in the digital economy's value, however, was quite slower than the 9.4 percent in 2022.
More than half (52.8 percent) of retail transactions were made with digital payments as of last year, marking a 10.7 percent expansion from 2022, according to the BSP. When it comes to value, 55.3 percent of such transactions were done online in 2023, up from 40.1 percent in the previous year.
The latest figures are well over the government's 50 percent target for both the volume and value of digital retail transactions. The central bank attributes the surge to the wider use of online payment channels among individuals and businesses alike—a shift that was ultimately accelerated by the COVID-19 pandemic.
“The need for contactless transactions and the convenience of online payments have led to a surge in their usage, but [likewise] fostered innovation in the digital payment sector,” said the BSP.
