How Does ‘Buy Now, Pay Later’ Work?
Managing a monthly budget isn’t easy, and we all have our own ways of doing so. It could be the old-fashioned way of putting money into envelopes, or it could be the YOLO approach of hoping to have enough money to cover that credit card debt at the end of each month.
Regardless of which method you use, the idea of being able to spread out payments for purchases is a welcome relief for many of us. It certainly makes buying big-ticket or expensive items possible without having to sacrifice your other monthly financial obligations.
Buying now and paying for your purchases in instalments is not new and many Malaysians are familiar with this concept.
What is buy now, pay later (BNPL)?
One method that many of us are familiar with is the practice of channeling all payments through a credit card. This works by having the card provider pay for your purchases first, and then charging you the full amount at the end of each month or if available, offering the option to pay using a credit card instalment plan.
This method will benefit those with the discipline to manage their spending each month through a credit card by earning more in the form of cashback and bonus point incentives.
Another method is through instalment plans offered by retailers, especially for some purchases that may be difficult to settle as a lump sum. Big-ticket items – like replacing the TV or washing machine – may end up bursting your monthly budget.
Many shops now offer easy payment plans that help you to afford expensive purchases by splitting the payment into more affordable monthly installments by partnering with credit card providers to break up these purchases into loans (some of which offer zero-interest rates).
These methods are extremely useful for controlling your spending, especially if you’re setting aside parts of your income for emergency savings and investments.
What are the risks of using BNPL?
Using the BNPL method to pay for your purchases requires being disciplined and avoiding impulse purchases.
This is because you may not really be aware of how much you’ve ended up spending until the bill arrives. There are financial consequences if you went a little overboard and can’t pay off what you owe.
Credit cards will charge you interest on what you owe if you miss a payment or cannot pay off everything you owe. This interest is also compounded every month that you don’t pay on time, so what starts as a 0% instalment plan can become an expensive debt.
One method for managing this risk is to use BNPL only for certain purchases, such as pre-planned expenses or emergencies that you can’t afford to pay off all at once. Items that are impulse purchases should come from a completely different budget that makes you pay for them immediately (so that you become extremely aware of how much you’re going to be spending right there).
Can you use BNPL without a credit card?
The answer is yes! In fact, this method of payment is becoming more popular, particularly with online shoppers.
According to a recent market research report about BNPL platforms, Asia Pacific is expected to be the fastest growing region for this payment method based on the high mobile internet penetration. In Malaysia, mobile phone usage reached 98.2% in 2020, which means more people are shopping using their phones and will therefore have access to BNPL payment options.
This is good news for BNPL providers in Malaysia. Since last year, several regional BNPL providers like Hoolah, Atome, Pinelabs, Split, Akulaku, Pace and SPayLater have started operations here.
Meanwhile Grab had already started offering its PayLater service in Malaysia since 2019 and is a familiar name to local consumers here who are already using its services for e-hailing and delivery.
What is PayLater by Grab?
As the name implies, PayLater is an option that allows you to buy first and pay for all your purchases either in full at the end of the month or in monthly instalments. It also has a host of other features that are all conveniently accessible via the Grab app.
PayLater allows you to consolidate all your rides, GrabFood/Mart orders and online purchases into a single bill. It also comes interest free with no extra charges , as long as you pay on time.
PayLater now also offers an “easy payment plan” feature. This gives you the option to split up big ticket purchases into four monthly instalments at zero interest rate.
You are going online to buy a new smartphone from DirectD. You’re a discerning consumer and decide to buy an Apple iPhone 12 as the best value for money phone; it costs you RM3899. However, paying the entire cost upfront will strain your cash flow for the entire month. So you choose to pay using PayLater and break up the payments into four installments of RM974.75 per month.
This way, you reduce the amount of shock to your finances and spread the expenditure out over a longer period of time.
Who can use PayLater?
To promote responsible consumption, PayLater is only available to eligible users who will be offered a personalised spending limit based on their past transactions on the Grab app.
With that in mind, there are some basic requirements for using PayLater.
- 21 years and older
- Platinum, Gold or Silver GrabRewards tier member
- Active Grab consumer using cashless payments
In order to help customers from missing payments using PayLater, Grab has the following features:
- Automatic deduction from GrabPay wallet, or if there is insufficient funds in the wallet, automatic top-up and deduction from a linked card.
- In-app spending and payment due dates tracking
- A consolidated monthly bill
- Spending notifications, bill reminders and alerts
- Temporary suspension of account if a bill payment is missed
Grab has also partnered with a number of online stores (such as FashionValet, Zalora, and DirectD) to facilitate the use of PayLater. This allows users to use PayLater by Grab instead of a credit or debit card, which adds an additional layer of security as shoppers do not have to store their card details with multiple merchants.
To find out more, visit the PayLater by Grab site.