Embedded Finance Part 5: Case Study - ShopBack Left The Buy Now Pay Later Market
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In a recent post on Fintech News Singapore, a site that always updates readers with the latest information in the fintech world, the following details are mentioned: "ShopBack, a shopping and rewards platform, revealed that it will be discontinuing its Buy Now, Pay Later (BNPL) service effective from 22 March 2024 in Singapore and Malaysia. This decision will affect both online and in-store transactions across its network of PayLater merchants.".
The above announcement may be very surprising as The PayLater service was introduced after ShopBack acquired BNPL player Hoolah back in November 2021. The offering was rolled out in July 2022 to Singapore and Malaysia.
Why did ShopBack decide to stop the service after 2 years of creation and operation? Is it because of the huge risk of this type of embedded finance integration industry? Let's analyze through FinFan's comments.
ShopBack and the story of M&A embedded lending business model Buy Now Pay Later - Hoolah
Expect to spread this embedded lending model to regional countries.
In November 2021, Singapore-based loyalty platform ShopBack was to acquire local buy now, pay later startup Hoolah.
This historic handshake has opened up huge development potential for both ShopBack and emerging fintech company Hoolah in expanding into other regional markets.
Launched on 1 March 2018, and active in Singapore, Malaysia and Hong Kong, Hoolah offers shoppers three interest-free installment payments at over 2,000 merchant sites.
With ShopBack support, hoolah will accelerate its growth with a platform to extend its BNPL offering to over 8,000 merchants and 30 million shoppers across nine markets in the Asia-Pacific.
“We see significant synergies between ShopBack’s and Hoolah’s product lines. Together as one, we unlock value by providing a broader platform of new capabilities and services for shoppers and merchants alike.
Shoppers get the best deals and rewards, and more flexible payment options, on a single platform. Merchant partners can access a large pool of high-intent shoppers and achieve higher conversions and basket sizes. Our best-in-class technology and rich transaction data will enable us to further accelerate the development of the BNPL sector across the Asia-Pacific.”
Henry Chan, co-founder and CEO of ShopBack
(Source: Finextra)
Gradually ending their relationship with this embedded lending in some countries such as Malaysia and Singapore
According to the latest news on Fintech News Singapore page, ShopBack, a shopping and rewards platform, revealed that it will be discontinuing its Buy Now, Pay Later (BNPL) service effective from 22 March 2024 in Singapore and Malaysia.
This action can have a significant impact on sales shops using ShopBack's system. However, ShopBack assured its users that other services provided by the platform would remain unaffected.
Customers can continue to earn cashback on online purchases, use ShopBack Pay at selected merchants, and purchase vouchers or gift cards.
Additionally, any accumulated cashback, including from PayLater transactions, will remain accessible for use or withdrawal to bank accounts.
For existing users of ShopBack PayLater with a good repayment history, the service will still be available for use until 21 March 2024, allowing purchases at participating stores until that date.
However, new users or those who have not previously utilised the PayLater service will find access immediately restricted.
(Source: Fintech News Singapore)
FinFan's comments on the above incident and the Buy Now Pay Later market in Southeast Asia
FinFan's comments on ShopBack's withdrawal from the embedded lending market
According to FinFan, ShopBack's step out of the BNPL market stems from the following three issues:
- Competition is too fierce from the market.
According to the market research site ResearchAndMarkets.com by 2023, the BNPL market in Singapore will have the presence of many big players such as Grab PayLater, Atome, Split, Citi Bank.
Although it is ranked 3rd on the rankings, however, with very fierce competition from competitors who are willing to burn a lot of money to expand market share, the market pie that Hoolah (the company is ShopBack acquisition) is not much left.
There are dozens of options and the latest company to join the fray is none other than Mastercard. They partnered with Pine Labs recently to roll out a 0% interest BNPL solution across the entire region.
With such a respected name getting in on the action, it would appear that BNPL is here to stay in Southeast Asia. But is that necessarily a good thing? Perhaps not for debt collections teams.
- Users easily misunderstand and turn away from the brand.
As the information updated above, in order to invite customers to use the service, the providers have swapped concepts and advertisements that are not 100% true about the Buy Now Pay Later service.
With words like “0% interest rate, no cost, no need to pay in advance to receive the product, etc”. Customers will easily be mistaken into thinking they are buying a bargain without paying careful attention to the information on the back.
Indeed, "Buy Now Pay Later " is a form of debt financing where the loan amount equals the value of the product the customer purchases.
While customers do not incur interest, extending the payment period may result in a slight increase in the total amount due.
This increase is typically communicated to the customer before finalizing the purchase, but normally, customers easily ignore this issue because they consider it an insignificant difference.
Moreover, if customers fail to make timely payments, late payment interest charges may apply, sometimes at rates comparable to those of regular credit cards or unsecured loans.
Because of these shortcomings, many unfortunate cases have occurred, especially in Southeast Asia where most people are still highly underbanked.
- ShopBack is aiming for IPO while Buy Now Pay Later is not bringing in significant sales.
Although BNP has been in the market for 3 years and is ranked 3rd in embedded lending coverage, this business segment does not bring positive revenue to ShopBack.
According to information from Tech Asian, SG-based ShopBack's losses widen as revenue shrinks 25% in FY2023 (the majority of which belongs to the category BNPL acquired from Hoolah).
This has caused this business to stop operating unprofitable segments, including BNPL to prepare for its long road to IPO on the Singapore stock exchange.
This expectation was set by ShopBack at the end of 2022 as reported by Yahoo Finance in mid-2022, ShopBack has raised US$200 million ($270.08 million) in an oversubscribed Series F round.
The final close came after US$30 million in equity capital via a strategic investment from Australian bank Westpac Banking Corporation. This followed an earlier announcement of ShopBack’s US$160 million Series F tranche from Asia Partners and 65 Equity Partners, among others.
The raise will support the Group’s growth efforts across the Asia Pacific as it gears up for the public markets, said ShopBack on Dec 8, 2022.
Is the embedded lending model still effective in Southeast Asia?
Compare two embedded lending models: Buy Now Pay Later and Peer-to-peer lending.
Despite the numerous challenges currently faced by the Business-to-Consumer (B2C) segment, where the model's effectiveness is yet to be fully established, particularly in areas such as verifying borrower identities, embedded lending has nonetheless demonstrated its efficacy in the context of Business-to-Business (B2B) loans.
There, businesses' need for loans will be greater and not all businesses have enough time to quickly complete procedures for borrowing capital from banks.
Therefore, they accept risks to be able to conduct P2P loan transactions through companies that provide support systems.
P2P lending is also very suitable for individuals who need to borrow small amounts of money urgently to pay for daily living expenses or buy a certain product without the form of buy now and pay later.
Subsequently, it will simplify the process for the service provider to verify the authentic identity of an individual or business requiring immediate financial assistance.
While one might borrow others' accounts or create virtual ones for making purchases, such actions are less likely with lenders. This is primarily due to the psychological implications associated with borrowing as opposed to acquiring goods without payment. The likelihood of this occurrence is considerably low.
Most importantly, the Buy Now Pay Later model is still facing fierce competition among a segment of people who use credit cards to pay (an almost similar method but provided by large banks), peer-to-peer lending is still a form that large banks are still very hesitant to deploy because it will affect their traditional lending services.
However, in some ways, standing on the customer's perspective, BNPL still meets some of the requirements of owning and paying for your favorite products right over the counter or on sales platforms without having to add extra steps. It also gives customers a more comfortable feeling when they think they are not in debt if they pay installments on time.
Finally, most importantly, the BNPL model often has lower interest rates than P2P lending. If you pay everything on time, the buyer only needs to pay a very small fee for the difference in the item when converted to an installment model (as mentioned above, most customers find it insignificant).
States support for embedded lending models.
In some countries in the region, these embedded lending models have been strongly supported by governments such as Singapore, Indonesia and Malaysia, the three countries are always leading the largest and most technologically updated fintech corporations in Southeast Asia, not only in the field of embedded lending but also in many other fields, typically payment with cryptocurrency.
Read more:
. Singapore – the first nation that has regulations for stablecoin in Southeast Asia
In Vietnam, the legal corridor for the above two models is still not clear and specific, especially for the P2P lending model when the state bank has only recently issued a draft on the development of this model.
Read more:
As for the BNPL model, only two marketplaces, Sendo and Tiki, are testing the model with major partner Kredivo as an integrated model of marketplace payment gateway specializing in installment payments.
More about the Embedded Finance series:
. Embedded Finance - Challenges and Risks
. Embedded Finance – Types of embedded finance in Vietnam
. Embedded Finance – Is that just an additional revenue for non-financial services?
About FinFan
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FinFan has integrated with most famous MTO, PSP, switch and core fintech platforms in the world such as Money Gram, Thunes, Qiwi, Remitly, World Remit, Bancore, PaySend, Terrapay, Ria Money Transfer (Euronet), Dlocal , Ripple, TripleA, FoMo Pay, Wings or Zalo.
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Dr. Tuyen Nguyen
Money Beyond Borders
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