Japanese banks are eyeing growth in the popular buy now pay later category in the Asia Pacific region

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Traditional banking institutions have continued to lose market share to new-age digital banking firms. In FY 2021, MUFG, one of the three megabanks in Japan, reported approximately 700,000 new account openings, whereas digital banking firms such as Rakuten Bank garnered more than 1 million new accounts. This growth in new account opening for digital banks is partly attributed to innovative payment solutions, such as buy now pay later, offered by these players.

In Japan, flexible payment solutions such as buy now pay later (BNPL) have gained widespread popularity, especially among young generation consumers. To capture the expanding market and drive new accounts, megabanks such as MUFG are seeking to enter the BNPL segment, both in the domestic and international markets, from the short to medium-term perspective. As part of its ambition to capture the growing BNPL market, MUFG has already entered into strategic acquisition and investment deals.

• In Japan, MUFG is buying a 70% stake in Kanmu, the domestic fintech firm which utilizes technology to determine consumer creditworthiness. The deal, worth US$150.6 million, will enable MUFG to issue debit cards with BNPL capabilities. This will allow the firm to provide short-term credit to consumers without additional screening.

The banking giant has adopted a differentiated approach in offering short-term loans to consumers. Credit cards, for instance, utilizes information such as annual income to extend loans. However, with debit card-based post-payment services, banks only need to verify creditworthiness based on past purchases.

Currently, Kanmu users can access Visa prepaid cards by entering their names and age. If they do not have sufficient cash on hand, the fintech firm provides them with short-term loans of up to 50,000 yen on the card, which the users can repay at month's end, along with fees at local convenience stores. As of September 2022, Kanmu has garnered 6 million application downloads, with teens and those in their 20s accounting for more than 50% of the downloads in Japan.

MUFG is expected to utilize the technology offered by Kanmu to incorporate the BNPL facility on its debit cards. The acquisition is projected to complete in Spring 2023 and the rollout of the BNPL facility might follow soon thereafter. The strong customer base of MUFG, approximately 34 million, will also expand the BNPL sales channels for the fintech firm in Japan. In addition to the domestic market, MUFG is also seeking BNPL market share in other countries in Southeast Asia.

• In December 2022, MUFG invested US$200 million in Akulaku, the Indonesia-based fintech firm that provides BNPL services. The investment is in line with the bank’s goal to expand into new markets and products in 2023. Along with Indonesia, Akulaku also has a presence in the Malaysian and the Philippines market, where it offers a virtual credit card and installment shopping platform.  In collaboration with MUFG, Akulaku will work on product development, financing, and distribution in the Southeast Asian region.

The strategic investment will allow MUFG to further grow its presence in the Southeast Asian market, where the BNPL payment solution has recorded strong growth and is projected to further continue its growth momentum. Before making the investment decision in Akulaku, MUFG also purchased the Indonesian and Filipino units of Home Credit BV in a deal valued at €596 million.

The expansion in the Southeast Asian market is part of the firm’s strategy to gain back market share from homegrown firms such as Indonesia-based Bank Central Asia and Singapore-based DBS Group Holdings. In addition to driving its market share in the region, the firm also aims to meet the financial needs, through the BNPL payment method, of the underserved customers in Southeast Asia.

In the United States, Mastercard and SoFi partnered to develop a BNPL solution. In December 2022, Worldline also launched an in-house BNPL service to cater to the growing demand for payment solutions in the travel sector. The growing presence of these leading financial institutions in the BNPL segment is a clear indication that the outlook of the flexible payment solution remains strong from the long-term perspective.

Consumers have already shown a strong appetite for BNPL adoption. The BNPL sales figure, during the Black Friday event, have surged significantly compared to last year. The macroeconomic environment, rising inflation and surging cost of living, has severely dampened consumer spending globally. To give consumers more purchasing power and drive sales growth, the adoption among retailers is projected to continue at a rapid pace from the short to medium-term perspective. This will keep driving the gross merchandise value and volume for BNPL providers in H1 2023.

To know more and gain a deeper understanding of the BNPL market in Asia Pacific, click here.