Gege Lin’s finances have been a headache for years. A 30-year-old tutor working at an education startup in Jakarta, she takes motorcycle taxis all over the sprawling city to meet with her students. Sometimes, she’d open her ride-hailing app to find she didn’t have enough cash to pay for the trip and would have to ask her students’ parents to cover her. Lin had tried to get a credit card, but the banks wouldn’t consider an  application from a freelancer.

That’s when Lin turned to PayLater, a service offered by ride-hailing company and aspiring super app Gojek. As its name suggests, PayLater allows users to pay in increments without having to jump through hoops at a bank, and the sign-up process is a lot less complicated. “All I had to do was take a selfie and send pictures of my identity card,” said Lin. “Then I could use it right away.”

Now, Lin doesn’t use PayLater to cover just her transport bills but also to buy daily essentials, like mobile phone credit, and cover recurring bills, such as the insurance fees for her father’s hospital visits. She says the service helps her manage her monthly expenses and make ends meet when she’s between paychecks.

“All I had to do was take a selfie and send pictures of my identity card. Then I could use it right away.”

PayLater is one of the financial services on the leading edge of Gojek’s transformation into a super app. Thanks to its popularity and a merger with Indonesia’s largest e-commerce platform, Tokopedia, the platform is growing into an all-encompassing ecosystem of services. Rival platform Grab and other regional tech giants like Shopee have also launched their own so-called buy now, pay later (BNPL) services, seeing them as a critical stepping stone in their transformations from ride-hailing, delivery, and e-commerce companies into full-blown digital banks.

“Many mobile payment providers in Indonesia and across the Asia Pacific want to pick up neobanking,” said Dewi Rengganis, payments analyst at Frost & Sullivan in Kuala Lumpur. “They want to use their payment platform to offer holistic digital financial services.”

Dedy Sutisna/Riau Images/Barcroft Media/Getty Images

Over the past few years, Southeast Asia’s tech giants Grab, Gojek (soon to merge with e-commerce company Tokopedia), and Shopee have been battling for control over wallets across the region, where online spending has soared due to rising incomes and growing access to mobile internet. This year, e-commerce gross merchandise value is projected to top $80 billion

The explosive popularity of e-commerce in the region spurred a rush of venture investment into digital financial services, even before the coronavirus pandemic reshaped how the world shopped. The pandemic poured accelerant on the already fast-growing sectors of online shopping and cashless payments.

BNPL services are an increasingly competitive segment within this push into fintech. A recent report from Worldpay projects that, over the next five years, BNPL will be one of the fastest-growing modes of online payment globally. In Indonesia, Southeast Asia’s most populous country and largest economy, online lending (including pay later and peer-to-peer lending) grew 20% in 2020, with a total disbursement of more than $5 billion, according to Adrian Gunadi, chairman of the Indonesian Joint Funding Fintech Association, a government-backed association of online lending service providers. Less than halfway through this year, said Gunadi, online lending disbursements have already topped $5.6 billion.

Alongside the region’s biggest tech players, companies like Atome, Hoolah, and Oriente have sprung up across Southeast Asia to offer digital financial services, including BNPL products, to consumers, retailers — both online shops and brick-and-mortar stores — and food delivery services.

Hoolah CEO Stuart Thornton told Rest of World that the company’s pay later service is now accepted at more than 2,800 merchants, up from around 1,500 at the end of 2020. Hoolah’s median transaction value for 2020 topped $300. During the pandemic, said Thornton, “people are becoming more thoughtful about price and appreciate the importance of personal cash flow. With buy now, pay later, they get to manage their monthly budgets by paying just one-third of their purchase for the things they need.”

Gojek’s PayLater service is part of its broader GoPay platform, which has transcended its origins as a simple electronic payments platform, and lets users manage their bills, loans, and insurance. Through a partnership with local financial institution Bank Jago, users can even open a traditional bank account through the app. With PayLater, consumers can defer payments on everything from groceries to airline tickets to purchases in the Google Play store. 

Tech companies’ enthusiasm for BNPL is driven by two main factors. First, the data that these companies have amassed on their customers’ financial lives is, in many ways, deeper and more revealing than the records held by a traditional bank. Banks often see patterns of only larger purchases and earnings; mobile payment and financial service companies collect granular data, helping them to build a detailed composite picture of customers’ creditworthiness.

Frost & Sullivan’s Rengganis likens this to the model pioneered by the Chinese tech giant Alibaba with its Alipay platform, which, along with Tencent’s WeChat Pay, is part of a commanding duopoly in China, the world’s largest mobile payments market. “Alipay has hundreds of data points to look into their customers’ behavior and spending,” she said. “They also have their own payment platform, therefore they have a lot of sources of information on the customers. Many buy now, pay later players will also be [looking to] adapt the same [model] as Alipay.”

And second, small-scale credit products give these platforms access to a huge customer base for financial services that traditional banks have struggled to reach. For many consumers in Southeast Asia, selecting pay later inside of their payment platform of choice may be their first time using a digital financial service and possibly the first time they’ve taken out credit in order to make a purchase. 

A 2019 report by KPMG estimated that 73% of people in Southeast Asia didn’t have bank accounts at formal banking institutions, and at least 18% of people in the region did not have access to credit. “Indonesia has traditionally had low financial inclusion levels; the majority of the population is still underbanked. Many consumers would not typically have access to lending services or installment payment plans,” Budi Gandasoebrata, managing director of GoPay, told Rest of World

The mobile payment platforms that spun out of other services, such as Gojek and its competitor Grab, have already gained widespread traction in this previously difficult-to-reach market. GoPay is the primary payment method for a ride or delivery from Gojek’s more than 2 million drivers and 900,000 merchants. And with so many people already using the service to pay their taxi and delivery drivers, the platform has the advantage of already being in users’ pockets.

“Being a part of the Gojek ecosystem is one of our key differentiating points, both on the consumer and merchant end,” Gandasoebrata said. “The process of using PayLater is also completely seamless. Consumers do not have to apply for the service — it will show up automatically as a payment option at checkout if they are eligible.”

“It’s really about allowing customers to take control of their spending rather than overspend.”

The companies bill themselves as offering a solution to the problem of financial inclusion. But observers and regulators worry that opaque lending criteria and aggressive promotions by companies that are trying to gain an advantage in a crowded space risk getting millions hooked on spending beyond their means.

Ita, a graphic designer in West Java’s Bogor, who asked to use only her first name to keep her financial situation private, had been using GoPay’s PayLater sporadically for about a year before her finances spiraled out of control. One night, stressed under a larger-than-usual workload, she ordered dinner using PayLater. Before she knew it, she’d ordered food with PayLater every day for a month — and spent more than twice her monthly budget. She was also using it to pay for her electricity and mobile phone bills. “Before, it was difficult to control myself. Now, I’m a lot more careful,” said Ita. These days, she said she tries to limit how much she uses PayLater and pays her bills via bank transfer.

“We’ve seen some buy now, pay later players in the market promoting people to spend beyond their means,” said Hoolah’s Thornton, who said his company prioritizes educating customers about financial literacy, to prevent spending too much. “It’s really about allowing customers to take control of their spending rather than overspend.”

Thornton said Hoolah uses a proprietary algorithm to determine whether someone qualifies for their service, which is currently available in Singapore, Malaysia, and Hong Kong, and is planning to launch in Thailand, Indonesia, the Philippines, and Vietnam later this year. Gandasoebrata at GoPay said that the platform uses data from a customer’s GoPay transaction history to determine eligibility.

For some of Southeast Asia’s biggest tech companies, BNPL services have become a gateway to getting credit to people who were previously difficult to reach, cementing their place in consumers’ wallets. Rengganis at Frost & Sullivan said it will be critical for the region’s governments to develop policy frameworks that can regulate these growing fintech services, because “it’s only a matter of time before many of these platforms become neobanks.”