Kazakhstan’s BNPL Dilemma: Balancing Consumer Demand with Economic Stability

Kazakhstan’s BNPL market has surged alongside its e-commerce growth, raising concerns among regulators about inflation and rising consumer debt levels. While companies like Kaspi.kz thrive, reports indicate potential risks to the banking sector. It is essential for policymakers to implement stricter regulations to ensure consumer protection and financial stability amidst the increasing popularity of BNPL schemes.

Kazakhstan is facing significant challenges as the popularity of buy-now-pay-later (BNPL) options grows among consumers. The explosive growth of this financing model, which allows short-term loans with low or zero interest, coincides with the country’s rise as an e-commerce hub. However, the government officials are increasingly wary of the potential adverse effects on inflation and consumer debt levels.

The success of BNPL financing is closely linked to companies like Kaspi.kz, which have established a strong presence on global stock markets. While this new form of credit has yielded dividends for lenders, it poses long-term risks to the financial sector and the national economy. A recent Bloomberg report highlights the regulatory scrutiny surrounding BNPL options due to their impact on inflation and rising consumer debt.

Kazakhstan’s e-commerce market exhibited significant growth, with digital sales increasing by 60% in the past year, reaching approximately KZT1.77 trillion ($3.7 billion). BNPL programs have emerged as a vital revenue source for lenders like Kaspi.kz and Halyk Savings Bank. As of September 2024, the total value of Kazakh lenders’ BNPL portfolios rose to KZT2.3 trillion ($4.5 billion), marking a 17% increase year-to-date.

On a global scale, the BNPL market was valued at $141.8 billion in 2021 and is projected to expand at a 33% compound annual growth rate (CAGR) by 2026, according to a report from ResearchAndMarkets.com. Concerns have arisen from the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM) regarding the potential of BNPL schemes to fuel inflation and escalate household debt levels.

The National Payments Corporation of Kazakhstan revealed that anecdotal evidence suggests BNPLs could constitute 50% of consumer loans, although official statistics are not yet available. Consumer lending has experienced an increase of 34-42% annually during 2022-2023, potentially propelled by BNPL adoption. However, some banks have begun extending credit to higher-risk borrowers, raising the likelihood of increased loan defaults.

Economist Alexander Yurin emphasizes the risks posed by high maximum interest rates on loans, which encourage banks to charge inflated rates and can lead to more defaults. He calls for stricter regulations within the consumer lending sector to mitigate these effects. Yurin suggests that clearer communication regarding the actual costs of instalment plans is essential for informed consumer decisions.

In addition, Madina Abylkasymova, head of the ARDFM, points out that hidden fees in BNPL agreements can cause cash buyers to pay inflated prices, treating them similarly to those utilizing BNPL options. The lack of oversight in Kazakhstan has raised alarms, as BNPL schemes might exacerbate inflation and reduce market competition.

Despite these warnings, there remains strong consumer and merchant support for BNPL options, with many vendors reporting decreased sales without them. Some industry proponents believe the single pricing model enhances customer experience. However, the Bank of International Settlements highlights that BNPL users tend to be younger with lower credit scores, suggesting a potential correlation with rising inflation.

Kazakhstan has faced double-digit inflation rates exacerbated by economic disruptions, which contribute to continued demand for BNPL products. As BNPL schemes may further inflame inflation, there is a risk of creating a cycle that adversely affects both consumers and providers. Richard Wray, COO of Carta Worldwide, emphasizes that high interest rates could deter lending and diminish revenues for BNPL providers.

Ultimately, strengthening regulations around BNPL practices may serve the interests of both Kazakh consumers and providers. The financial regulator is addressing marketplace practices to facilitate lower prices for cash transactions. However, tangible actions from competition authorities are still awaited.

The rapid rise of buy-now-pay-later (BNPL) options in Kazakhstan presents both opportunities and challenges. While consumers benefit from accessible credit, regulators express concerns regarding inflation and household debt. The current trajectory raises significant economic questions, necessitating stricter regulations to protect consumers and maintain financial stability. As the country innovates in the fintech sector, the call for transparency and accountability in BNPL agreements becomes crucial for long-term economic health.

Original Source: www.intellinews.com