LCQ5: "Buy now, pay later" mode of electronic consumption
1.6.2022

Following is a question by the Hon Martin Liao and a reply by the Secretary for Financial Services and the Treasury, Mr Christopher Hui, in the Legislative Council today (June 1): Question: It has been reported that in recent years, the "buy now, pay later" (BNPL) mode of electronic consumption has been very popular in Asia and well received by the younger generation. In Hong Kong, there are also BNPL payment service platforms (BNPL platforms) introduced by a virtual bank and some enterprises. There are views that this kind of platforms generally does not set an income threshold for clients and also allows consumers to pay by interest-free instalments in order to solicit business, while the fines and handling fees incurred by clients for late repayment are relatively low. As a result, young people are easily spurred into overspending which causes them to be trapped in debt crises. In this connection, will the Government inform this Council: (1) whether it has compiled statistics on the total amount of money spent by Hong Kong's consumers through the BNPL mode, and the proportion of such an amount in the total e-commerce retail sales in Hong Kong, as well as the number of late repayment cases, in the past two years; (2) whether it will, by making reference to the practice of the United Kingdom, enact legislation to require that BNPL platforms must first make enquiries about their clients' personal credit reports and review clients' repayment ability before they may grant consumption loans; if so, of the details; if not, the reasons for that; and (3) given that financial institutions are currently unable to gain an understanding of whether their clients have BNPL debts through making enquiries about clients' credit reports, whether the Government will require that BNPL platforms must submit credit data to credit reference agencies; if so, of the details; if not, the reasons for that? Reply: President, With the popularisation of e-commerce and technological development, different forms of innovative payment services have emerged in the financial market. "Buy Now Pay Later" (BNPL) mentioned by the Hon Martin Liao is one of the examples. Generally speaking, BNPL platforms provide instalment payment services through mobile applications that enable users to split bills from their partner merchants into certain instalments. Compared with other instalment payment services (e.g. credit card instalment payment services) on the market, repayment periods of BNPL are generally shorter (mostly around three months), and no extra charges will be incurred if users settle the payments on time. In case of late payment, depending on their mode of operation, individual BNPL platforms may charge interests or a fixed handling fee. BNPL services are more prevalent overseas, while still in the development phase in Hong Kong. Some BNPL platforms would suspend users' accounts if the users fail to repay on time so as to avoid further losses, which indirectly also help prevent users from piling up loans. Meanwhile, our prevailing measures on consumer protection and promotion of prudent borrowing also cover BNPL services. For example, BNPL services launched by banks (including virtual banks) are subject to regulation concerning personal credit products promulgated by the Hong Kong Monetary Authority (HKMA); as for BNPL services provided by other non-bank entities, if provision of loans to users is involved, they need to apply for money lenders licences under the Money Lenders Ordinance (Cap. 163) (MLO), and comply with the regulatory requirements under the licensing conditions. The Government has also been promoting the importance of prudent borrowing which include avoiding overspending, having due regard to personal financial situation and repayment ability, avoiding piling up of debts, etc., through public education activities. Having consulted the HKMA and the Companies Registry, my reply to the Hon Martin Liao's question is as follows. According to a study report on global payments (Note 1), the payment made by Hong Kong consumers at physical stores by way of BNPL services in 2021 only accounted for around 2 percent of the total, with credit card still being the most preferred means of payment (around 55 percent of the transaction amount), while electronic wallets and cash constituted around 24 percent and 11 percent respectively. In addition, the Investor and Financial Education Council (IFEC) has conducted a survey between April and May this year, which shows that around 35 percent of the respondents have heard of BNPL services before, with around 0.3 percent of them having used such services. These show that usage of BNPL in consumer spending is still at its initial stage. BNPL services provided by banks are generally in the form of unsecured personal lending products. The HKMA has required banks involved in the provision of unsecured personal lending products to assess credit applications and conduct credit reviews utilising credit reference services in accordance with the Supervisory Policy Manual. As to BNPL services provided by other entities, they may need to apply for licences under the MLO depending on their specific mode of operation. According to the licensing conditions for money lenders, money lenders have to conduct an assessment of the borrower's repayment ability before granting any agreement for an unsecured personal loan. As regards provision of credit data to credit reference agency (CRA), the HKMA has all along been requiring banks to submit credit data of customers to the CRA in accordance with the requirements stipulated in the Code of Practice on Consumer Credit Data. The same requirement also applies to banks which provide BNPL services. Currently, major money lenders in terms of personal loan volume have been providing credit data to the CRA, thereby enabling credit providers such as banks and licensed money lenders to share personal credit data with a view to assessing creditworthiness of consumers more accurately. As the usage of BNPL may grow over time as mentioned by the Hon Martin Liao, the HKMA is developing guidance to strengthen consumer protection in respect of banks' innovative consumer finance products, such as BNPL products, with reference to international practices. Such work is in progress, and the HKMA expects to consult the banking industry on the detailed guidance in the coming few months. At the same time, the IFEC has established a dedicated section on its website (Note 2) to illustrate key features of BNPL services, and set out issues that consumers should pay attention to when using such services. We will continue to closely monitor the development of BNPL services, and review our regulatory measures and public education work, with a view to ensuring that in promoting financial innovation, our regulatory measures are up-to-date to enable healthy and orderly development of the market and protection of consumer rights. Thank you, President. Note 1: The 2022 Global Payments Report published by Worldpay under the financial services provider FIS. Note 2: www.ifec.org.hk/web/en/blog/2021/12/buy-now-pay-later.page .