Running Up A Tab
If you want to be rich learn not only to earn but also save money.
— Benjamin Franklin
Advance Intelligence Group was in the news recently for its rise to unicorn status after raising money from well established private equity players. You may not have heard of the company, but you may have heard or even used one of its offerings before - Atome.
Atome is one of the pioneers of the Buy Now, Pay Later (BNPL) concept in Asia. For either offline or online purchases, Atome allows consumers to pay in 3 zero-interest payments over time, with no annual fees or service fees. They have partnered with many brands and shops, ranging from ZALORA, Sephora, Marks & Spencer, Charles & Keith, to the ubiquitous Anytime Fitness.
For significant and large purchases, it helps to break up the payments into smaller bite-sized amounts. Even though it’s the same cash outlay over time, buying it this way makes it much easier to stomach some purchases.
At first glance, it doesn’t make much sense - why would anyone want to split up your payments, and allow you to pay later with 0%? How does Atome make money? Well, it’s all under the surface it seems. There must be some reason why the likes of Softbank and Warburg Pincus gave them $400 million in their recent Series D funding round.
Whilst the consumer doesn’t pay a markup, BNPL providers charge their merchant partners a fee for every transaction processed by them. It sounds logical as merchants can possibly increase their customer base to those who may have initially shied away by offering products that appear “cheaper”. However, where BNPL providers make money are from the late fees charged to customers when they miss the payments.
The BNPL concept really sounds wonderful for consumers — no high interest rates, no upfront payments for big ticket purchases, the ability to make time value of money to work in your favour. For people who are good at budgeting and planning out their finances, BNPL is great. However, those who are prone to mistakes like overspending, impulse purchases and insufficient disposable income to handle payments are at significant risk.
A recent survey extrapolated that approximately 38% of Singaporeans have used a BNPL service - which is around 1.1 million people. Majority of the respondents who have used the BNPL service were aged between 16 to 44 years old; essentially the Gen Zs and Millennials. The chart below shows some of the money mistakes made by those who have used the service, with more respondents being male.
In terms of the age breakdown, those in the 35-44 bracket were the ones who made the most money mistakes. It is possible that this sandwiched generation - with both young children and elderly parents to take care of, are stretching their finances a little too thin.
Despite the rising debt problems, BNPL is likely to grow and expand from here. A recent report showed how the personal debt of young Singaporeans had soared during COVID-19. The pandemic, which has impacted monthly salaries for many people will likely continue to play a part in growing the demand for BNPL. When people find out how easy it is to purchase things in installments without the need to take a loan, its expansion will continue.
BNPL offerings are a great deal for the wealthier and those who have their finances put together well, however it has the potential to dig deeper holes for those who don’t. It is equivalent to running up a big tab at the bar without having the ability to pay. Eventually, you will get beaten and thrown out.
The best way to pay for big purchases is still the old-fashioned way - saving up gradually in advance. This instills discipline and allows you to visualise the end goal. If you need a second opinion to check your current cash flow, state of finances and how you can actually incrementally save and invest instead of spending, get in touch with us.
