Defaults in BNPL were at 6.78 percent of outstanding loan value in the first six months of this year, more than half than that of banks at 2.44 percent.

Many may think that these are well expected and are just part of the high-risk high-reward business of online lending, but every single failed payment actually matters to each individual caught in these bad loans.

The OJK has reminded that fintech is already connected with the general financial system so that any failed payments in BNPL will be recorded in a joint database managed by the OJK called SLIK, in which data is shared among other financial institutions, such as banks and multi-finance firms.

In theory, a default of even just Rp 200,000 (US$13.02) could prevent one from accessing vehicle or mortgage loans, which are worth a hundred times more. Alternatively, these individuals could still access the credits, albeit at a higher interest rate as they are perceived as high-risk borrowers.

It is true that BNPL defaults only made up a mere 0.35 percent of the total credit portfolio in the financial industry as of mid-2023, but its users accounted for almost a third of the number of credit accounts in Indonesia.

Having a large number of people who could no longer access loans could be bad for future credit growth, which could translate to the overall economy as well.

Beyond vehicles and mortgages, it is important to note that some, if not many, people use loans for productive purposes such as starting a business.

Moreover, many local news reports have shown that companies have been utilizing the data to filter new job applicants, as they seek to prevent employees entangled in bad debt, which may disrupt day-to-day tasks.

If this affects future employment, then the risks could be far more alarming to Indonesia’s economy.

Furthermore, OJK data showed that in April, almost half of the default BNPL users ranged from 20 to 30 years of age, falling into the millennial and Gen Z groups. This has raised questions on how these BNPL platforms assess the creditworthiness of their borrowers.

According to Statistics Indonesia, around half of those in that age range earned less than Rp 2 million a month, below the average payroll of workers nationwide at Rp 2.89 million a month.

The use of credit scoring, which simplifies credit assessment, is a blessing for the industry, but recent developments may warrant that it is not doing enough and BNPL platforms need to be more prudent.

If necessary, the OJK should consider requiring BNPL platforms to comply with certain standards for its prudence, similar to what the authority does with insurance companies when taking customers.

This is important given the target of BNPL is consumptive loans, with borrowers in most cases making spending decisions without thinking, especially if consumers do not realize that they are buying goods using purchasing power that they never had to begin with, as well as in the future.

Celebratory dissemination and education events are unlikely to be effective in raising awareness of consumers in this day and age. No more jargon. More action is needed by the OJK and platforms to curb these trends.

If done right, these BNPL services could do more than just drag people into debt, but instead help them gradually build their credit records starting from small loans.

This serves as a ladder for people to access larger financing, as financial institutions would take into account past successful debt repayments in considering new and larger loan disbursements to its customers.