Buy now, pay later gains ground in Korea as marketing tool

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Buy now, pay later gains ground in Korea as marketing tool

Korean tech companies are providing and expanding buy now, pay later (BNPL) services to develop markets and build customer loyalty.
Naver Financial, Kakao Pay, Toss and Coupang have introduced BNPL to their users, expecting higher transaction volumes through the service.  
Flexpay, a subsidiary of Danal, even offers a BNPL service that can be settled in cryptocurrencies when users make a purchase at its Flex Store online shopping mall.  
The BNPL market has expanded globally during the pandemic and has become a global trend.  
Apple said it will introduce a BNPL feature called Apple Pay Later this year during its WWDC 2022 conference in June.
The service will allow users to pay for their Apple Pay purchase in four installment payments over six weeks, with no interest or fees to pay, according to the company.
The global tech company will receive fees from business owners that use this service and be provided with the user's payment data.  
"The move marks the first time Apple is handling key financial tasks like loans, risk management and credit assessments," according to Bloomberg report in June.
The sharp rise in demand for online shopping has led many BNPL startups to expand their businesses in the United States and Europe. Traditional finance companies, such as Master Card and J.P. Morgan, have also moved into the on-the-fly-lending market.  
Retailers, such as Adidas and Gap, have also started offering the service.
Companies diving into the BNPL boom are mainly doing so to reach out to more users. The service is seen as a credit card for the economically vulnerable, like young adults or the unemployed, who aren't able to qualify for a credit card due to weak finances or short credit histories.
The BNPL market is expected to grow further, as Bank of America projects the global BNPL market volume will reach $1 trillion by 2025.
Korea has a relatively high share of credit card holders. One person holds an average of 4.2 credit cards among the economically active population, according to 2021 data by the Credit Finance Association. Interest-free installment payment by credit cards is also used prevalently.  
Under a regulatory sandbox program in Korea, firms are also required to file for regulatory sandbox approval every two years.
Despite these factors, Korean fintech companies are starting BNPL services to gain more traffic to their services.
"We introduced the BNPL service in March and have seen positive results, including the increased use of Toss Payments and rising monthly payment amounts," said a spokesperson for Toss.  
"We are expecting a lock-in effect of thin filers to use Naver Pay even after they become fat fillers," said a spokesperson for Naver Financial.
Thin filers refer to those lacking sufficient financial history for full credit analysis.
Among traditional finance companies, credit card companies were the most active in offering the service.
Hyundai Card started offering BNPL services this month, while KB Kookmin Card is preparing to introduce the service with Danal. Shinhan Bank is developing the service with NHN Payco.
Some BNPL startups in Korea are also applying new business models to expand their presence in the market.  
Lomad, an online furniture marketplace, operates BNPL services for customers to purchase expensive furniture and household goods. The number of accumulated visitors reached one million, and sales in the first half of this year were over 6 billion won ($4.6 million).  
Paymonths is a service that allows merchants at the Dongdaemun Market to pay later when purchasing clothes in a large quantities.  
"The spending limit is decided depending on data, such as the store's sales figure and return rate of products," said Jang Jong-wook, CEO of FiNovus Lab, who founded Paymonths.  
Analysts say the decline in consumption due to the weak economy may be a hurdle for the BNPL to settle in the country for now. Policies that allow companies to force and collect payments from users if they do not make the payment on time are also needed.  
"Additional discussion is needed for matters such as delinquency rates and collecting past-due payments," said a spokesperson for Financial Supervisory Service.  

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