Fraud, debt rising as users desperate for cash and turn to buy-now-pay-later platforms for loans

This article was originally published in Rest of World, a journal that examines the impact of technology outside the West.

Dang Thi Han, who works at a spa in southern Vietnam, was strapped for cash in early June. So she turned to a Facebook group she’d heard about—“Shopee SPayLater Wallet Community.” She found someone who would wire her cash if she used the Shopee e-commerce platform’s buy now, pay later option to pay her utility bills. Han did, but she never heard from him again.

Buy now, pay later is almost ubiquitous in e-commerce. But its rapid growth is fueling a shadow market for peer-to-peer lending, also known as cash advances, in Southeast Asia. Hundreds of buy now, pay later cash advance groups on Facebook connect lenders with accounts with borrowers in need of cash. But lenders can disappear without making a promised payment, and borrowers sometimes fail to pay their bills in full.

“I am not the only person who has been scammed on Shopee SPayLater – there are many others,” said 21-year-old Han Rest of the world.

She paid VND611,000 ($24) for the user’s utility bills, with the understanding that he would transfer the money to her after charging a small fee. But he disappeared.

“I have to pay high interest (on the amount) every month” to the buy now, pay later provider, Han said.

Since its introduction in Southeast Asia in 2018, buy now, pay later has helped drive online shopping, particularly among younger consumers, and has also been embraced by those who lack access to formal credit. About 30% of the population aged 15 and over in Thailand has no or insufficient bank accounts. In Vietnam and the Philippines, the figure is more than 60%, according to Euromonitor International.

But as buy now, pay later has grown in popularity, so have concerns about debt. The Singapore FinTech Association has introduced a buy now, pay later code of conduct that includes safeguards such as overdue payment limits, fee caps and transparent disclosures “to mitigate the risk of consumer over-indebtedness.” Thailand’s Kasikorn Bank, which operates KPayLater, said earlier this year that it would stop accepting new buy now, pay later users because it couldn’t determine “the income level of potential customers.”

Thailand’s National Credit Bureau has urged buy-now-pay-later service providers to improve controls to prevent the system from being misused to create informal loans. This could encourage loan sharks and worsen household debt, it said. The country’s household debt-to-gross domestic product ratio is one of the highest in the world, posing serious risks to the economy, the central bank warned. The Cybercrime Investigation Bureau also issued a warning about buy-now-pay-later scams.

According to Huy Pham, a finance lecturer, cash withdrawals in a buy now, pay later system are attractive to individuals because they “offer quick access to cash and low interest rates” compared to traditional money lending at the Royal Melbourne Institute of Technology Vietnam. However, the practice is not regulated and those who are defrauded are not protected by law. “If these schemes continue unchecked, we could have a growing level of bad debt in “BNPL providers,” Huy said Rest of the worldreferring to financial entities such as Vietnamese Reepay, Singaporean Atome and SeaMoney, which operates SPayLater.

Buy-now-pay-later e-commerce payments in Southeast Asia, valued at $3.1 billion in 2022, are expected to grow fivefold by 2027, according to an IDC Financial Insights report. Some e-commerce companies may turn a blind eye to payouts because they “want to grow quickly,” said Nguyen Anh Cuong, CEO of Fundiin, a BNPL provider in Vietnam. Rest of the world.

“They may not be as stringent … because strict scrutiny of every transaction leads to a poor customer experience,” he said.

Technically, platforms don’t allow buy-now-pay-later credit to be cashed out. On Fundiin, merchants are required to provide receipts for high-value transactions to weed out fake orders, Cuong said. Users can only top up credit using their own phone number, and the measure can also be applied to utility bills, he said.

A SeaMoney spokesman said SPayLater “monitors and takes action against suspicious accounts or transactions” Rest of the world. It has a “strict policy against misuse of services and abuse of the platform,” with efforts to “protect our users, (and) community education programs focused on responsible use and fraud prevention.”

Some users believe they are acting responsibly. Lu Tan Tu offers utility bill cash withdrawals through SPayLater and the MoMo e-wallet in the central Vietnamese city of Da Nang. The 24-year-old has been withdrawing cash for a year, with amounts ranging from VND500,000 ($20) to VND3 million ($119), he said. Rest of the world. He charges 1% to 5% service fees, “just as a side business to make money for gas.” For borrowers, payday loans are a “safer alternative” to loan sharks, he said.

TPBank, which handles loans for SPayLater in Vietnam, states in its terms of service that the feature can only be used to purchase goods and services on Shopee. But by using it for utility bills, cash-out providers are not actually breaking that rule, RMIT’s Huy said.

Maureen Manalili Balagtas, a 23-year-old mother from Pampanga Province in the Philippines, finds cash advances to be a beneficial service. She learned about SPayLater cash advances for online sellers from YouTube tutorials, she said Rest of the world.

Merchants with business accounts that are compatible with SPayLater use QR codes for Shopee’s scan and pay feature. Customers who want to cash out simply scan the QR code as if they were paying for an item. Once the merchant receives the money, it is then transferred to the customer, minus a service fee.

Balagtas charges a 4% fee to process cash withdrawals and had more than 100 customers in its first month, she said. Her customers have used the money to pay bills and even start small businesses, she said. But she is aware of scams: “Many have been scammed by others.”

Some customers here in Vietnam have been unable to pay back buy-now-pay-later platforms on time, he said. He estimated that about 70% of those advertising cash-out offers in Facebook groups are scammers. “The scammers are very sophisticated; they fake things,” he said.

Platforms issue warnings. In Vietnam, MoMo warns that cash withdrawal schemes are scams. However, the Facebook group for cash withdrawals MoMo has almost half a million members.

It is difficult to determine the scale of bad debts with buy-now-pay-later cash advances. Ngo Minh Hieu, who heads the Vietnam Fraud Prevention Project, said the amounts borrowed are “not large.” More worrying is that borrowers are giving out their personal information to strangers, “which could be used for future fraud,” he said Rest of the world.

Han, the spa worker, posted a warning about her scam on the SPayLater Facebook group, along with screenshots. To avoid being charged late fees by SPayLater, she had to borrow money from other lending apps, she said.

“People should be vigilant and think carefully before they withdraw money,” Han said. “Once was enough to scare me forever.”

Lam Le is a Rest of World reporter covering jobs and technology in Southeast Asia, based in Hanoi, Vietnam.

Jitsiree Thongnoi is a freelance journalist based in Bangkok.

This article was originally published in Rest of the worldwhich includes the influence of technology beyond the West.