Who doesn’t want to afford an iPhone for RM170 a month?

After all, it feels like such a “small” commitment, and you’ll get a brand new phone to symbolize your upgraded status in society.

Before you know it, it’s not just the phone. It’s a new handbag, a watch, some shoes, and the latest outfit too.

And just like that, you’ve walked straight into the Buy Now Pay Later (BNPL) debt trap — juggling 4 to 5 different instalments, with no savings left at the end of the month.

BNPL is growing at a rapid pace and can become a major problem if not monitored.

From 2023 to 2024, the total transaction value for BNPL doubled from RM6.3 billion to RM12 billion.

96.7% of the market share belonged to Shopee (53.9%), Atome (32.9%), and Grab (9.9%).

There are currently 5.1 million active BNPL users.

7 in 10 of them fall into the B40 group and use this as their only source of personal financing.

The majority are young working adults, aged 21-35 years. At the rate things are going, BNPL usage will double again to 10 million users by 2026.

Why is BNPL so addictive?

Convenience

There are no background checks, no income checks. Everything is done online, and you don’t even need money upfront. Just a few clicks and you're approved. For instance, Shopee’s SPayLater requires you to only have a valid myKad and be aged between 18-65 years old.

Consumerism culture

We’re constantly told to buy things we can’t really afford, because more consumption means more business for companies. Social media glamorizes material items — big houses, luxury cars, designer bags — as symbols of success.

Fashion and tech companies push new trends and products every year, selling minor upgrades as must-haves. All these warp our idea of what’s affordable and what we “need.”

Manipulative marketing

BNPL companies say things like, “Own this iPhone for only RM170/month” or “You deserve the finer things. Get it NOW!” These messages make us think our wants should be fulfilled instantly.

The Temporal Discount (ie. splitting bills into multiple payments across time) makes people feel that the goods are cheaper, but that’s not the case. You’re still paying the same amount, but now you’re sacrificing your future to pay for it.

Low income

Malaysia’s median salary is currently RM2,602 per month. With inflation spiking during Covid and the prices of everything going through the roof, it has become more difficult for the current generation to afford anything upfront for cash.

The existence of BNPL allows us to access cheap credit and buy things we don’t have money for. With no background checks, many low income earners use this as their only source of personal financing, with majority of their transactions being of low value, ranging from RM70-90.

This means that they are using BNPL to acquire daily items like food, entertainment, and household stuff.

BNPL is more dangerous than credit cards

By splitting the payments to months or even years, BNPL highly encourages you to spend on things you cannot afford.

This is completely DIFFERENT from buying things upfront with cash or a credit card, as you’ll feel the PAIN in your wallet instantly (or during the end of the month).

Managing one BNPL transaction might feel harmless, but juggling 4–5 at once can quickly drain your savings and affect your ability to afford daily needs.

While credit cards also carry the risk of overspending, the presence of interest tends to make people more cautious with their spending.

Most credit cards offer a 21-day grace period to pay off your full statement. If you don’t, interest starts accumulating daily — usually between 15% to 18% annually.

But BNPL works differently. Instead of interest, you’re charged a flat penalty for each missed payment.

Take Atome, for example — they charge RM23–RM30 for every missed instalment. That might not seem like much, but if your monthly instalment is just RM100, that’s a 23%–30% penalty — much higher than the interest you'd pay on a credit card.

Does this mean that all DEBTS are bad?

Not at all. Debts can be good if you know how to use them. Hann has created a two-step checklist for you to determine if you should take on debt:

• Check 1
  Are you buying an asset? Does this help you generate wealth and/or grow your personal knowledge? Examples include: education, home loan, work equipment, car for transport.

• Check 2
  Is the rate below 5% pa? With EPF paying 5.50-6.00% pa and cash apps/FDs giving 3.00-4.00% pa, any debt above 5% is considered BAD. You would need to invest with significantly higher returns to beat this rate.

Therefore:

• Using credit card for long term borrowing (12-18% pa) is BAD, even if it’s for buying an asset.

• Taking a loan to go for holiday trips is BAD, even when the interest rates are low.

• Using BNPL to buy a new handbag is BAD, even when there’s ZERO interest.

Basically, debts that are used for consumption rather than asset purchases are considered BAD.

But if you still want to use BNPL, here’s how you avoid overspending

• Save up enough to buy the item for cash

• Place the money somewhere that can give you steady returns and flexibility

This way, you’ll earn some profit without worrying about affordability.

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice. The opinions of this newsletter are solely that of the publisher.

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