Bandung, IndonesiaSentinel.com — Buy Now Pay Later (BNPL) services, also known as PayLater, are rapidly gaining ground in Indonesia, overtaking credit cards as a preferred payment method for many consumers. Once primarily associated with online shopping, BNPL has now expanded into physical retail stores, further solidifying its place in the financial landscape.
According to Indonesia’s Financial Services Authority (OJK), the total financing of BNPL services soared to IDR 7.81 trillion (USD $508 millions) by July 2024. Agusman, the Chief Executive of Supervision for Financing Institutions, Venture Capital Companies, Microfinance Institutions, and Other Financial Service Institutions at OJK, highlighted this remarkable growth in a statement released on September 7, 2024.
“The outstanding financing for BNPL in financing companies as of July 2024 shows a 73.55% year-on-year growth to IDR 7.81 trillion,” Agusman said.
A 2024 report by Kredivo, one of Indonesia’s largest BNPL platforms, underscores the service’s growing popularity. Buy Now Pay Later services now ranks as one of the top three most commonly used payment methods for online shopping, accounting for 70.5% of digital transactions. In contrast, the use of credit cards has seen a sharp decline, dropping from 15% in 2023 to just 9.5% in 2024.
While BNPL remains most prominent in the e-commerce space, it is now making inroads into offline, in-person transactions. In fact, offline transactions accounted for 27.7% of total BNPL usage in 2023, representing a staggering 169% increase over the previous year. The fourth quarter of 2023 saw the highest offline BNPL activity, driven by holiday shopping and aggressive promotions from retailers.
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Nailul Huda, Director of Digital Economy at CELIOS (Center of Economic and Law Studies), attributes this offline expansion to BNPL’s growing appeal among older generations. While younger consumers initially fueled the rise of BNPL, older Indonesians, who are less inclined to shop online, have embraced the service as a convenient way to make in-store purchases.
“This trend shows that BNPL’s presence in offline retail is effectively expanding its user demographics. It presents a tremendous opportunity for the BNPL industry to continue growing and positively impact Indonesia’s economy by enhancing financial access and accelerating digital transaction adoption,” Huda noted.
The increasing use of Buy Now Pay Later services in physical stores is particularly significant in Indonesia’s tier 2 and tier 3 cities. These regions often face infrastructure limitations, such as inconsistent internet access and high shipping costs, making BNPL’s offline option an attractive solution for consumers seeking credit but lacking easy access to online shopping platforms.
Huda further predicts that BNPL’s expansion into these smaller cities will fuel significant user growth in the coming years, as more consumers discover the convenience and flexibility of deferred payment options.
Opportunities for Merchants and Financial Services
The surge in offline Buy Now Pay Later service usage presents new opportunities for both merchants and BNPL providers. By integrating BNPL options into their retail environments, brick-and-mortar stores can attract more customers and boost sales, while BNPL platforms can expand their market reach beyond the digital sphere.
As BNPL becomes more embedded in Indonesia’s retail landscape, its ability to bridge the gap between financial inclusion and consumer spending will be crucial. By offering a flexible alternative to traditional credit, Buy Now Pay Later services have the potential to further empower Indonesia’s growing middle class while driving the continued digitalization of the country’s economy.
However, as BNPL services continue to evolve, regulators may need to monitor the market closely to ensure that consumers are protected from overextension and financial risk.
(Raidi/Agung)
