China’s buy now pay later market is set to grow — but the industry is still at a nascent stage, and challenges lie ahead, experts told CNBC.

Kapil Tuli, a marketing professor at Singapore Management University (SMU), Lee Kong Chian School of Business said that there’s been a huge interest in BNPL in China during the past decade.

Pay now and get it later is a method of payment that allows consumers to make purchases, then pay off the balance in instalments. This can often be interest-free. While BNPL can be used to pay interest only, providers may charge significant late fees.

Tuli says that there are several factors driving the growth of the trend. These include extremely low interest rates and the growth of online payments through super apps like Alipay or WeChat, as well as fintech startups that are very well funded and eager to attract new customers.

Boh Wai Fong is the deputy dean at Nanyang Business School, Nanyang Technological University, Singapore.

According to PayNXT360, the Chinese BNPL market was identified as the fastest-growing in Asia-Pacific according to a study.

According to the Q2 2021 BNPL SurveyThe country’s BNPL payment is forecast to rise by 51.3% per year and could be worth $82.78billion in 2021.

Because of their ease-of-use and convenience, approximately 74% Chinese use mobile payments daily in 2020. according to a surveyThe Payment and Clearing Association of China.

According to research, tech-savvy Chinese youth are now jumping on this bandwagon in order to feed their thirst for new gadgets.

36% of borrowers in consumer finance are aged between 18 and 29, excluding those who have taken out housing loans. according to a study by the Academic Center for China’s Economic Practice and Thinking at Tsinghua University.

However, critics warn that this trend could lead to excessive spending. An American consumer advocacy group conducted an analysis and found that almost a quarter of BNPL usersThey spent more money than they expected to because of the availability of the service.

Boh said that Covid-19’s impact on household incomes means Chinese households may look to BNPL for a way to reduce long-term costs of big-ticket goods.  

Prof. Zhang said that the growth in BNPL was “inevitable”. She pointed out, however, that unlike many other markets, the ecommerce, mobile payments and e-commerce industries in China are “very stable” as they are dominated and governed by large players, such as AlibabaAnd Tencent. She said that this means new companies, such as international ones, may not have the opportunity to enter China’s market.

Ant Group’s micro-lending business Ant Check Later was a popular player in China. It is also known as Huabei and allows Alipay customers to purchase online or offline without having to use credit cards. They can even repay the loan through installments. According to a spokesperson for the company, this service is no longer available.

Reports have also indicated thatAnt Group intends to expand its Southeast Asian payments service to Alipay+. This cross-border payment solution includes ewallets and BNPL.

Rival Tencent is reportedly A test version Fen Fu has been released. This allows WeChat users who use WeChat to make instalments payments for their purchases.

These are the most recent months. Chinese regulators have cracked down on the country’s internet giantsThese have been heavily dominated over the years by few tech giants. Recurrent scrutiny has been intensified and new rules adopted. anti-competitive practicesAnd data protection.

This has led to the expansion of an international merchant network that includes over 1,500 brand-named local and foreign brands. NikeTissot and New Balance. According to Li, consumers spend between 1,000 and 1,500 Chinese Yuan ($157 to $235) on beauty, fashion, and skincare products. They are seeing a growing demand for luxury fashion.

Major banks have also thrown their support behind BNPL businesses.

Atome Financial is the business unit that runs Atome’s digital lending platform. inked a 10-year partnership with Standard Charted. This partnership provides $500 million for financing and co-branding products on multiple Asian markets.

Li stated that BNPL was still in a very early stage of development on mainland China, but that they expect strong long-term growth.

Atome plans to continue expanding to more cities in tier 1 or tier 2, given its “huge potential”, adding that Atome has the ability to take advantage of the regional markets to facilitate cross-border trade between Southeast Asia, China, and Southeast Asia.

Chinese regulators have been improving since the last year. They have widened their regulatory crackdown on China’s so-called “platform economy,”It covers an array of sectors, including online shopping and food delivery. fintech.

Ruan Tianyue said the buy-now, pay-later practice “encourages spending and sometimes triggers what is thought to be excessive spending,” Ruan Tianyue assistant professor in Finance Department at National University of Singapore Business School.

As with other types of consumer credit, BNPL may need to be designated as non-performing loans if a borrower defaults on a loan payment. She stated that “too much non-performing debt can pose a threat to economic and financial stability.”

Boh of NTU noted that BNPLs are still relatively new in China. She added that the regulatory framework and industry guidelines have not been fully developed and it’s important to continue developing them.

Tuli of SMU also agreed. She said that although BNPL was a very popular choice for Chinese consumers, who struggle to get credit cards due to their financial difficulties, the market is expected to experience a less “measured and understated” growth.

“The China regulators have seen a slowdown in growth over the last six month. Chinese regulators can be very sensitive [about]Tuli stated that anything which could pose a systemic threat to financial systems is unacceptable.

“Going ahead, companies need to be careful in how they entice consumers… I don’t expect to see a wild wild west growth which we saw earlier,” he said, referring to how the BNPL sector was seeing promising growth before the tech crackdown.