The rise of buy-now-pay-later (BNPL) schemes in Kazakhstan poses challenges for regulators attempting to control inflation and consumer debt. The success of fintech companies like Kaspi.kz has highlighted both the benefits and risks of BNPL, leading to growing regulatory scrutiny. While BNPL has become a substantial revenue source, concerns over overindebtedness and hidden fees necessitate stronger regulation and consumer protection measures.
Kazakhstan is currently facing challenges regarding the rise of buy-now-pay-later (BNPL) schemes, which have gained immense popularity among consumers. This trend presents a concern for officials striving to control inflation and manage the growth of consumer debt. The increasing presence of BNPL, characterized by short-term loans often involving minimal or no interest, coincides with Kazakhstan’s emergence as a key player in the e-commerce sector. While consumers enjoy these benefits, the implications for the banking sector and overall economy cannot be overlooked.
Kaspi.kz has emerged as a significant player in Kazakhstan’s fintech landscape, demonstrating the growing success of BNPL in the region. However, this trend raises questions about potential adverse effects on the banking industry in the long term. According to a Bloomberg report in December, concerns about the impact of BNPL on inflation and consumer debt metrics have prompted regulatory inquiries, as this payment option has become a lucrative revenue stream for major lenders like Kaspi.kz and Halyk Savings Bank.
The growth of Kazakhstan’s digital marketplace has been remarkable, with online sales surging by 60% last year, totaling KZT1.77 trillion ($3.7 billion). Kaspi.kz, which controls over 75% of the online marketplace, emphasized that BNPL is a critical product, accounting for nearly half of its lending in the past year. By September 2024, BNPL portfolios for Kazakh lenders reached KZT2.3 trillion ($4.5 billion), reflecting a significant yearly increase, as reported by the Agency for Regulation and Development of the Financial Market (ARDFM).
The BNPL phenomenon is not confined to Kazakhstan; globally, the BNPL market was valued at $141.8 billion in 2021, with expectations to grow at a compound annual growth rate of 33% until 2026. The growth in BNPL usage raises alarms among regulatory bodies and economic analysts about the inflationary pressures and the potential for increased household debt.
Concerns regarding BNPL practices include possible inflation of prices across various sectors and compromised efforts to mitigate household indebtedness. According to the ARDFM, anecdotal evidence suggests BNPLs could represent 50% of consumer loans, although official data remains scarce. Moreover, consumer lending has seen substantial annual growth, further propelled by BNPL options.
As BNPL products become more widely available, there is a trend to offer loans to riskier borrowers, which could subsequently lead to increased loan defaults. Economist Alexander Yurin highlighted that unmanageable interest rates on loans ultimately push conscientious borrowers to inadvertently absorb the financial losses incurred by banks from defaults.
Yurin advocated for stricter regulations on consumer lending, especially concerning instalment plans and interest-free loans. He suggested similar information disclosures as seen in Russia regarding the hidden costs associated with instalments, which tend to inflate the final purchase prices for consumers opting for payment plans.
The ARDFM has expressed concern over the collusion between BNPL providers and merchants, which may mislead buyers into believing that paying in instalments is as beneficial as making a cash payment. According to Madina Abylkasymova, head of the ARDFM, hidden fees embedded in BNPL agreements can lead to cash purchasers effectively paying the same inflated amounts as those using financing options.
Expert Galim Khusainov criticized the current lack of oversight in the BNPL market and cautioned that without stringent regulations, such installment schemes may contribute to heightened inflation and diminished competition within the financial market. He emphasized the necessity for consumers to be made aware of hidden BNPL costs that could impact their buying decisions.
Despite these challenges, the inclination towards BNPL remains strong in Kazakhstan, with some businesses reporting significant sales declines in its absence. Local financial institutions tend to defend the single-price marketing strategy associated with BNPL, arguing that it enhances customer experiences.
Research by the Bank of International Settlements indicates that typical BNPL users tend to be younger with lower credit profiles, a situation exacerbated by Kazakhstan’s higher inflation rates. The fear of a cyclical pattern of BNPL reliance leading to inflation exacerbates the need for regulatory intervention to safeguard both consumers and BNPL providers in Kazakhstan’s economic landscape.
Collaborative efforts between Kazakhstan’s financial and competition regulators are in progress to evaluate pricing practices and compliance with retail lending rate limits, though decisive action from the competition authority is still awaited.
Kazakhstan’s burgeoning BNPL market presents both opportunities and challenges for consumers and financial officials. While consumers appreciate the accessibility of instalment payment options, regulatory bodies express valid concerns about the inflationary impact and potential for rising household debt. Effective regulation and transparency regarding BNPL agreements are crucial to sustaining market stability and protecting consumer rights. The future of BNPL in Kazakhstan hinges on balancing consumer accessibility with prudent oversight to avoid adverse economic effects in the long term.
Original Source: www.intellinews.com
