Buy Now, Pay Later: How Does It Work? [Chills 34 with Hoolah]
The advancement of technology has given rise to a number of innovative fintech solutions and one of them is Buy Now, Pay Later (BNPL) where consumers get to buy products without having to pay the full price upfront. Instead, they pay zero-interest instalments over a period of time. How does this actually work and what are the possibilities for both consumers and merchants? Could BNPL spell trouble for consumers who might overspend, or is this an opportunity for others?
In this week’s Chills with TFC, we invite Arvin Singh, COO and co-founder of Hoolah, a BNPL company to educate us on BNPL and debunk common misconceptions on it. Find out how you can maximize the use of BNPL and spend your money in a responsible manner!
Many people confuse BNPL with IPP (Instalment Payment Plans) since both involve instalment payments. However, Arvin points out some major differences: IPP involves some form of processing/administrative fee that is paid by the consumers while for BNPL, the fees are borne by the merchants. This sets BNPL apart from the traditional credit system that most are familiar with.
In this episode, he shares actual consumer feedback that he has received over the years which reinforces Hoolah’s vision on responsible affordability. He also reveals interesting research data on BNPL in Singapore that may surprise you!
Andrew: Buy Now, Pay Later or BNPL is a trend that’s picking up in Singapore. You get to enjoy your goods and services without paying full upfront costs and most of the services are offering 0% interest which sounds good. But you might be thinking: will I over spend? Will I get into debt? There must be a catch to it.
Let’s find out if these perceptions are true and how does it compare to instalment payment plans, which has its own acronym too: IPP (Instalment Payment Plans). We also look at some data and consumer trends. Make a guess, which age group among Singaporeans do you see a spike in BNPL usage and why? What do people use BNPL for during Covid-19 circuit breaker in Singapore? Let’s find out how to use BNPL to your advantage!
Expand Full Transcript
Hello, my name is Andrew and welcome to another Chills with TFC session. In this series, we hope to bring on interesting and relevant people to help us learn better from various perspectives. Life is not always about learning from the people you agree with. Different perspectives shape us to be more well-rounded in our thinking. So in the pursuit of the life we love while managing our finances as well, let’s see if BNPL is a tool that can help us.
My guest is the COO and co-founder of Hoolah, a Buy Now, Pay Later company. We find out how BNPL is different from credit cards and other forms of payment. I also asked him about MAS’ (Monetary Authority of Singapore) stand on BNPL schemes, because I’m sure preventing excessive consumer debt among Singaporeans is something they’re concerned about. For you as the consumer, we talk about responsible spending, late fees and how you can make payments on time. Apart from freeing up your cashflow, what other benefits are there in using BNPL? Let’s hear from Arvin Singh.
So tell us about Buy Now, Pay Later and how it is different from instalment payment plans and apparently there’s an acronym for it. IPP, right?
Arvin: Correct, the IPP and the BNPL question. There’s probably two different answers to this. I think one is how is Buy Now, Pay Later different from the traditional IPP and the other is how is Hoolah’s take on BNPL a little bit different? (That’s) the thing that’s important for us to get out there as well. But in general, the key differences between Buy Now, Pay Later and an instalment payment plan… there’s elements like the interest payment. An IPP tends to have some sort of either processing fee, operating fee or administrative fee… something in there that essentially needs to be calculated out as an annual interest rate or an effective interest rate.
BNPL in general, is no interest or no charge actually to make use of the service. Generally, the fees are borne by the merchants rather than the consumer. The other difference is that IPP tend to be biased towards more long-term instalments, so 12 months, 18 months, 36 months and the revenue stream tends to be from the consumer rather than from the merchant.
I think that’s probably one of the biggest differences with BNPL is that it’s about creating value for merchants. Of course, the consumers get a lot of benefit as well, but the revenue stream is merchant driven.
Andrew: No interest after a certain point, or no interest at all?
Arvin: No interest at all.
Andrew: But what if I default on my payment as a consumer?
Arvin: So there are fixed late payment charges applied, but they aren’t compounding, they don’t stack. They’re essentially one-off late payment charge tied to the payment that you miss. Say it’s three payments that you’re due to pay. Generally in a BNPL model, you make the first payment upfront on day one of making the transaction. In our view, the next payment is 30 days later in Singapore, for example with Hoolah.
If you miss that, we take a slightly different approach. We don’t apply an immediate late payment charge or anything like that. We’ll take the route of communication first. Let’s get in touch, email, SMS…
Arvin: Correct. Let’s hit the customer on their mobile device because that’s probably where they’re going to spend their time and then ask them to make the payment. Generally people… the number one reason is they overlooked it. They just forgot, that’s it. “I forgot. I overlooked it. Oops, thanks for the reminder.”
It’s a much better experience for our customer and we find that what we get from that by communicating, instead of just hammering you with a fee is the customer is going to trust you better, is going to probably use the service again, rather than just saying “you know what? You kind of took advantage of a lapse in memory”. Now we try to be proactive. We’ll send them a reminder a couple days before it’s due but people miss that stuff as well.
Andrew: So Buy Now, Pay Later, BNPL, it seems like it’s a good thing for consumers. Are IPPs more for credit cards or what other IPPs are there?
Arvin: IPPs tend to be linked to a credit product that you already have. It’s bank driven. It is somebody that’s already on board with the bank. For us, it’s interesting because we opened it up to debit card holders as well. They have access to an instrument to make the repayments. They’re generally paying with cash that they have, not a credit product. They’re making their repayments with… essentially directly their bank account balance. So it’s really money that they have to be able to make that payment.
Andrew: Okay, so what’s the user experience like? I download an app and I see it’s available at the store, online… tell us about it.
Arvin: It’s both channels. So you can either shop online or in store, in the online checkout flow. It’s all baked into the merchant’s existing online checkout. So you’ll have at the final stage, when you’re choosing your payment option, you’ll see Hoolah there as a payment method. You choose Hoolah and then you create your account. In Singapore, it’s really fast because we have this Singpass concept where you can log in really quick and get your account started.
In the other markets, we do an eKYC (Electronic Know Your Customer) through a third party provider to do that sign up. In the physical retail, it is app driven. So you’ll download the Hoolah app, register for your account, do the KYC, all of that onboarding stuff and then you’ll scan the QR code in the physical store.
Everything is, in the end of the day, mobile driven. So even the folks that check out on online tend to be on a mobile device. We just don’t want to kill that experience where you’re in the checkout flow then you have to jump to an app and do something else, and then come back to the website. It’s all baked into that flow.
Now, after you finish that purchase and sign up and everything, you can download the app, manage your account, make the future payments, make an early payment, whatever way you want to take things on what the future payments you have to make.
Andrew: So the only payment they might possibly have to make will be late payment fees. Is that all? Anything else?
Arvin: No, there’s no other fees or charges to a consumer.
Andrew: Okay. So just to summarize the difference between BNPL and IPP is that it’s more short term, three months, six months, and that there’s no interest, and the only fees you might possibly pay will be your late payment fees.
Andrew: Unless you keep rolling over that late payment…
Arvin: Yeah I mean the reality is the late payment is fixed. It’s a fixed dollar amount. So it’s not going to be, like I said, compounding in any way. As soon as you hit one late payment charge, we will kinda pull the plug and say “listen, you’re not going to do any other orders until you pay off that late payment” and then move forward. The majority of customers, like I said, it’s really because they forgot and they’ll make the payment before we even apply late payment charge.
Andrew: So how does Hoolah make company on this? You’re saying it’s more on the merchant side. They pay a fee. Is it a percentage? What is it ?
Arvin: Correct, so on the retail side, essentially what we’re driving in terms of benefit is that we’re helping retailers access more customers. More folks can afford their product and as a result, yes, we do charge the retailer a transaction fee for every successful Hoolah transaction. It’s only when users use Hoolah on your website that you will pay a fee. There’s no setup fees or again, we try to make it really simple for both merchants and consumers. No administration or operating fees or anything like that. Here is a transactional fee, that’s it.
Andrew: So it’s trying to attract consumers who probably need more cashflow or they just want to split up their payment. Merchants might not have their own ways to do so and they come to Hoolah.
Arvin: Correct. Not to pat ourselves on the back… it’s a complicated business model in the sense that what we allow the merchant to do is essentially receive the full amount, of course minus a small transaction fee that we charge without taking on any of the risk. So it’s on us to get the amount from the consumer. Inherently with that model, it also means that we are essentially paying to a merchant before we actually have the cash flow. There is a working cut, like a deficit essentially that we have.
Arvin: Okay. The receivables… Actually, to run this as a merchant would mean that you’d have to be sitting on a huge pile of cash to be able to fund the business.
Andrew: Hoolah is sitting on a huge pile of cash?
Arvin: That’s a… doing this at scale means that you need to continuously access that working capital aspect of it, that cash aspect so you can keep growing the amount that your merchants are processing. So it is an inherent part of the business model. We work with a few partners on that side of it. But it’s one of those complexities of the business model.
Andrew: I’ve seen BNPL getting more media coverage this year. Is it a relatively new concept? How long has it been around?
Arvin: BNPL… it’s well over a decade now that it’s been around. It’s probably gained more popularity in Scandinavia as a starting point. In Australia… Australia’s probably 7 or 8 years into the model now and at a maturity point, the US has recently taken off as a result in the last… say 3 years and Western Europe as well.
In terms of where we are from an Asian wide or even Southeast Asia standpoint, more specifically, it’s very early days still. I think we’re still establishing the business model and while there’s a lot of media coverage or generally press about it, it is still really the early days. A lot of what we’re doing right now is still educating both consumers and merchants on the business model and how it works.
Andrew: So it’s relatively early in Asia but you are saying it’s been around for at least 10 years?
Arvin: Yeah. The concept of Buy Now, Pay Later has been around for a long time.
Andrew: Well, the concept of credit has been around longer, but the whole idea of this new…
Arvin: Yeah, attaching it to a product rather than receiving dollars, right? That’s really… if you think of it, conceptually, you’re buying an item, you’re not getting access to cash or getting an amount of money deposited to your bank account. That concept of a retail product, yeah, probably been over a decade largely out of Scandinavia as the starting grounds.
Andrew: Definitely a lot of education to do. The first thing that my friends said when I brought it up to them is that “It’s going to get people into debt”. How do you address that? If you’re focusing on merchants and not consumers, then it doesn’t seem to be too much of a problem.
Arvin: It is because, and this is where the business model gets fun and again, how it differs from perhaps the traditional IPPs or call it the other financial instruments out there. We’re inherently motivated to have customers pay on time which is really interesting as a concept. Traditionally, an instalment plan makes more money when customers make mistakes and pay late. They will get lots of fees that stack up. Whatever late payment charge we might have is not enough to make up for the working capital, like the cashflow deficit that evolves from this.
So generally, actually all of the time, we’re super motivated as a business to have customers pay on time. It means two things happen. One, we over communicate to customers like when payments are upcoming, when everything is due, when it might run into overdues, how the model works, what the fees look like, we are super, super transparent about it. Two, we actually make a decision to say no both to prospective customers who are coming on the platform for the first time and to existing customers who we believe are potentially overextending themselves and this might be more of a Hoolah difference.
One of the things that kind of sets us apart from the Buy Now, Pay Later landscape is we’ll say to a consumer “thank you for wanting to use our service, but right now you’ve got a lot going on in terms of open orders. Pay off for some of it first and then we can look at you doing a new order.”
It’s a tough message to deliver to somebody who really wants a product. But it’s where we have to step in and play this role of responsible affordability.
Andrew: How do you access their financial situation? Banks have credit score, but how do you know?
Arvin: Let me put it this way. My current credit card limit is based on when I was working in a very corporate role, not a startup.
Andrew: Hasn’t been updated?
Arvin: Right. So it is highly outdated and probably completely irrelevant to what I should be having access to now. I’m hopefully a responsible user, I’ve adjusted it myself. So I made that call and… “hey, listen. You’re going to have to take my credit limit down a bit.” But that’s where I think the financial institutions traditionally are reactive in that way. They’re waiting for 3, 5 years for somebody to update their situation or their employment circumstances.
I’ve been into branch and they’ve not asked me about my employment situation which is quite fascinating and I think about it. We are making a decision based on how well we know the customer, their history with us, their payment history and generally we’re stepping in at a point to say “you might have the money, right?” You might have more than enough cash to make the repayments, but we’re going to have to take this position with our customers in general to say there’s a responsible space to use Hoolah in, and then it gets to the point where it’s no longer responsible.
It’s tough because we are essentially saying we’re going to turn down some good orders, good revenue, good growth. But there’s a long term position that we think that is more important, which is we’re not going to contribute to folks getting into financial overextension. So you’ll never see Hoolah run this type of “do 20 transactions this weekend and win a prize.” Do one transaction with this merchant and get to know them a little bit. We won’t do those 20 order type of promos.
Andrew: So you are saying that you don’t have to depend on people’s forgetfulness or honest mistakes and therefore you’re actually quite motivated to make sure people pay on time, because depending on their forgetfulness to pay the late payment fees, it’s not enough to cover your working capital at all, so you’d rather they pay on time. That actually gives you more cash flow.
Arvin: Correct. That’s it in a nutshell. It really is important for us to have customers pay on time and it motivates us to build great technology, build great comms, build a great customer support team. All of those things that contribute to that… and of course upfront you go to the top of the funnel from the first transaction to the fifth transaction when somebody does. It’s also ensuring that they’re making those orders responsibly.
So we will put limits in place. We have it where the Hoolah engine will step in and say that type of message. It’s purposefully an engine that steps in because you don’t call customer support and say or message customer support and say “hey, I’d like to get this order through.” They can’t make that change. They don’t have control over that. It is really your Hoolah account, is your Hoolah account
Andrew: Okay, let’s look under the hood of that Hoolah engine. What do you have in place to make sure that consumers like myself pay on time?
Arvin: In terms of the paying on time, I think it’s more about ensuring that you’re not overextending yourself so that you can pay on time. That’s really where the responsible aspect for us has to come in. We’re not going to let you do 10 orders in a weekend. That’s just not feasible with our platform. Other Buy Now, Pay Later… other payment systems, they might allow you to do that. But I think they’re setting up everybody in the ecosystem for failure as a result of that type of approach.
So we’ll take a proactive approach to say you’re at a limit point. We will step in. Again, the messaging is really difficult to get it right, but we will step in. I see the customer support team take a beating sometimes from customers who really want something.
Andrew: “This is my money. I decide how I want to spend it. Why are you’re stepping in?”
Arvin: Yeah. There is a bit of that. We’re quite firm that we have to play this role at scale and then of course, we will work through with customers that face difficult situations. It happens. I think regardless of how well you plan for the future, even in the short term, you can run into some challenges, but inherently what the model it is so short term in the three month period that there’s a lot of predictability for customers.
There’s fairly good stability for their cashflow. They understand what… 90 days from now, it looks like better than what 365 days from now looks like. So I think it’s easier for them to predict their financial position in that 90 day window.
Andrew: Okay, so that’s one big misconception that you just cleared up. What else? What other misconceptions are there?
Arvin: Maybe there’s some views around the technology side again in terms of how robust that might be. I think anybody in startup or FinTech kind of gets that lens from the market or from… say a traditional [indiscernible]. That view… “oh it’s startup tech” or “it’s a startup”, that kind of negative view that we might not be as robust technically as others.
Andrew: Might close shop the next day…
Arvin: But it’s more about how you build technology rather than say, the longevity or financial position of the business but it’s… are you building bank grade systems? Are you holding yourselves to that type of threshold of quality of building? I think it is important actually. It’s good that scrutiny exists because it pushes us and make sure that we are doing exactly that. We’re building robust systems. We’ve got great engineers. We’re not cutting corners when it comes to this type of stuff. We’ve got the best security available in place. All of those things, because we’re dealing with transactions at the end of the day, the customers are making. That needs to be safe.
Andrew: Yeah. How about privacy concerns?
Arvin: I think that’s an interesting one because I think it comes down again to transparency in terms of privacy concerns. Of course, the security and everything else, customers give you access to their information to make a decision about their position, you need to hold that pretty sacred.
We are not passing on Hoolah score or anything like that to any third parties or any view of doing that. I think it’s really important that we tell customers you’re here to use our service, we will hold that data intact. We’re not going out there to sell your data or use it in any other way. That’s really important, but it’s also about just being super, super transparent. We’re probably the only business that lists late payment charges on our homepage. It’s just there.
Andrew: So how much is it at this point in time?
Arvin: Yeah, it’s market specific. So it’ll have to be by country. You can look at them. It’s on hoolah.co. You can see it on the homepage, you load it up. I think we’re really the only ones. Actually, I’ll be honest. It was a financial blogger who called me out on it. She messaged me on Facebook of all places. There was an article about Hoolah. I had commented and she dropped me a note and she said “you know what would be great for your business? Be more transparent.”
Andrew: Just put it out.
Arvin: Just put it out there. Ideas like that come from anywhere. I wasn’t opposed to it. It’s just… we hadn’t done it. I asked the product team and the next day, it was up there. It was just a good way to be transparent. I took that feedback and did it immediately. I think that was great feedback to get as well. We’re super open to folks giving that type of feedback also.
Andrew: Ideally, you’ve got to be financially prudent, so you shouldn’t be paying the late payment fees like you are saying, right? There are systems in place they have to pay on time.
Arvin: They have a deterrent more than anything else, but yeah, generally we want people paying on time as much as possible. I realize you’ve put it out there, it actually reduces the number of customer support inquiries that come in as well. So it’s actually net good for the business anyways that to have that situation.
Andrew: Okay. So BNPL is getting more attention in Singapore. I just want to pull up this article. I want to get it right.
Andrew: The Monetary Authority of Singapore (MAS) announced that it is reviewing BNPL schemes to determine if there’s a need to ring fence overspending by consumers. This announcement actually follows a trend, a growing trend of younger consumers engaging in BNPL schemes online to purchase items that they may not otherwise have been able to afford upfront. So what is Hoolah’s stance on this decision?
Arvin: There’s two views on this. One is more about the data and the other is more about the regulation side. It’s been years since we had our first engagement with MAS. It’s something that we welcome. The first engagement we had was many years ago before we even set up the business really and got it going.
They’ve been super supportive in terms of the FinTech community and getting startups going in Singapore and I think it’s an important conversation to be had. We welcome that perspective, that position from the regulator… their feedback. It is an important thing for them to have a voice on and whatever conversation needs to be had next, we will partake actively. We will be a part of that discussion.
Andrew: So what came out of the discussion? What are the parameters? What are the guidelines? If you still remember… it’s been a few years.
Arvin: To be honest, at that point, it was more so just to understand the business model.
Andrew: What is this new thing that you are introducing to Singaporean consumers?
Arvin: That was exactly it. It was just hammering the questions through just to make sure that they understood the business model. That was it. Beyond that, it’s not been that intensive. As required, Payment Services Act is there. You can see us on the website from the exemptions on the Payment Services Act. It’s very transparent.
I think Singapore is very easy to deal with that regulatory engagement. Get that conversation going, get the dialogue. Any further dialogue I think is more than welcome. There has been… i would call it more informal dialogue through some of the law societies as well just to understand how existing regulation works in Singapore and having an open dialogue.
I can say that we are the only BNPL that proactively participated in that discussion and I think it was important that we brought an industry lens as well, not just to make it an academic conversation. It needed to be about the practical considerations for customers as well.
So I think we’ll see some more conversations like that happening. I think there’s an opportunity as well for the industry to come together and start looking at some best practice. I’d like to see some of the other BNPLs walk away from some of the aggressive campaigns of doing X number of transactions in a short period of time. I think some of that stuff needs to go away for this to be a healthy environment as well for users.
Andrew: They’re trying to get more engagement on their apps, right? They are trying to build habits…
Andrew: …like what most social networks are trying to do.
Arvin: Correct. I get the intent, but the outcome probably isn’t what they are hoping for as well, right? There is a position where customers using that platform is going to have a challenge at a certain point. So I think it’s important that the industry comes together and set some standards in terms of… we hold ourselves accountable as the BNPL industry.
Again, it’s very early days. There’s generally a view that you don’t want to do too much so that you kill innovation. But I do think that the industry is growing very quickly. The uptake is quite high and it is going to get to an inflection point sooner than in other markets. So the industry does need to come together and have that conversation.
I think the other thing on your point was more around that data on consumers, the age of the consumers, the spending habits and what they are doing. That really holds true in the US… I’ve seen with the data that’s out there.
There was a recent study that came out in Singapore and we actually worked with the folks… we didn’t work with them. It was after they had done the work, they reached out to just validate some of what they found. We were able to actually confirm some of the things that they had come through with that research piece, which was the age of the BNPL in Singapore in particular is older than expected and a wider range than expected.
Andrew: Which will be in the range of…?
Arvin: 24 to 34.
Andrew: And that they have a tendency to overspend?
Arvin: Not at all. So that was the interesting other piece…
Andrew: So 24 to 34, they are on the BNPL?
Arvin: Correct. The folks who have actually used BNPL are largely in that and it’s very smoothly distributed across that age range as well. So it’s not like everybody’s 24 to 25. The question actually that they had was around… what is each age range within that kind of purchasing? Is there a propensity to purchase different types of products?
Singapore is a very interesting market for many reasons. Folks tend to hit that BTO age, the HDB kind of first purchase for first home ownership at a specific age range as well. That late 20s, early 30s type of… and you can see the home furnishings kind of purchases step into that.
It’s really interesting to see how this market is unique in its own ways and how customers behave in this market. But we look at it like there’s a group of customers… you can’t use your HDB loan to do furnishing, right? So…
Arvin: Correct. We are now helping a group of customers do something that enabled their day-to-day life. Covid also had some really interesting trends.
Andrew: For example?
Arvin: Home furnishings, home stuff went through the roof, whether it was computer desks, chairs, standing desks and all the ergonomic stuff did really well. The interesting…
Andrew: Gaming chairs.
Arvin: There was a little bit of gaming chairs, definitely. The interesting one for me was looking at kitchen appliances start to take off, like the smaller kitchen appliances…
Andrew: People making bread.
Arvin: Bread making, coffee at home. You want a better coffee machine at home. You’re not going out every day to buy that Starbucks. You want to invest in some good coffee at home. It’s really interesting. People really started to invest in their work from home situation or just being at home more often. I think they want it to be more comfortable, if they’re going to spend 20 hours at home every day, probably even more than that. In most cases, you’re going to want to have some of those comforts.
So folks really did make that investment and there’s a long-term view of those investments as well. That standing desk is going to last a few years. That new sofa is going to last years. It’s not really a terrible investment for the family. It was a really positive thing to see people really take that ownership and even now we see folks still making those types of investments.
Andrew: So from the data you’re seeing, you are saying that the observation that young people might overspend might not be true? There’s no conclusive evidence.
Arvin: Correct, and I think the thing we need to keep in mind is that we’re in a very different part of the world and we might be a bit lucky. In Singapore, its data is quite unique always, even in the context of the rest of Southeast Asia, but we’ve seen that in other parts of Southeast Asia. We’re in Malaysia as well. We’re in Hong Kong. We’re expanding into other markets in Southeast Asia.
We’re seeing the data, even some of the qualitative data that we have. The use cases for BNPL are not quite the same as say, in the US or Australia or in Europe. So it is really interesting to just keep reminding ourselves expanding a product across Asia is complicated.
Every market is different. It behaves in its own way. It’s one of the things that we love about living in this part of the world, but it makes doing business very difficult. You need to keep that in mind all the time as you expand a solution into new markets.
Andrew: So what other quirks about Singaporeans that you have observed? Is there any?
Arvin: We have broken into the 60+ age range in Singapore, so that’s probably one that stands out. Folks in their 60s have used Hoolah which is quite unique. Again, some of that is furnishing and some of the household items that come into play…. but I think also launching into physical retail last year, we were privileged because Singapore was able to open up at a point last year and get back into physical retail.
We saw that started to create usage of that same older demographic as well. Some of the merchants that we launched with as well, it wasn’t Zalora and Secret Lab that we work with today. It was more of BHG. It’s a department store. You’re going to get a broad range of users when you have a department store as well and you have to be able to make the solution work well for that broad range of users.
Andrew: Did you think your marketing strategies worked to reach this demographics or somehow they found it on their own and words start spreading?
Arvin: Given that I’m responsible for marketing, I’m going to say that the strategy was great.
Andrew: The strategy, there’s deep thought.
Arvin: Totally strategy driven. I would say it’s about listening to customers at the end of the day, because those early adopters back in 2018 were sitting there as a small team of five people around the table, just trying to get those first group of transactions through the line and what we did was talk to those customers. I remember the early days of just asking them why? Why did you choose to use Hoolah?
And then you start to understand motivation, what they’re buying, how they’re buying it, what that really feels like for that customer on the other side. That helped us drive some of the marketing strategies that we subsequently had. We’ve had some great folks in our marketing team, just kidding aside… we’ve had some amazing people that have helped us build out some really amazing marketing strategies that can take that balance of that responsible affordability piece as well and make sure customers understand that this isn’t for you to go buy everything that you want. This is to help you make an investment into high quality product to really impact that life style that you’re trying to achieve.
Andrew: So help me to understand some of the psychology from talking to these customers. Why do they use Hoolah? Why do they use BNPL? Apart from smoothening your cash flow, what else?
Arvin: Smoothing cashflow, for sure. One of the best stories that I’ve ever had… I was actually at an event two years ago and somebody came up to me and it’s just so out of context. He was like “you helped me get my bed” and I was like “what are you talking about?” And he’s like “seriously, I had two options on the table. I had this really cheap flimsy option. I knew it was going to last maybe a year. Then I had the thing that I really wanted, which was a good investment, a quality product and then I saw you guys. That changed my decision making completely. I wanted to invest in a quality product. You helped me get it.”
That just blew my mind away. From that moment, I’ve been talking to the team: how do we help customers make more investments into higher quality products? How do we get them to enjoy something that’s better and will last long as well? That’s been a really big part of this for us in terms of the journey.
Andrew: Because if I had to make a one-time full payment, I would just go for the cheaper option or more inferior product which may last me 1 year, 2 years. But if I use BNPL, I have more options.
Andrew: As long as I manage my cashflow well.
Arvin: Correct, and I think that’s what it comes down to. This is somebody who had a stable job, was doing investments on the side, pretty responsible person and actually in the VC (Venture Capital) space as well. Super interesting, but just wanted to share and there was this emotional moment, right? You helped me get the thing that I actually wanted, the higher quality thing that I wanted to get access to.
And I thought that was a really important moment for us to hear that from a customer and for me personally, to hear the impact that we could have to somebody’s daily life. We’ve made that a really important part of what we are as a business since and make sure that we’re sharing that with customers as well. It’s not about buying 10 of the things that’s going to break, buy one of the thing that’s going to last and be that really good investment into a quality product.
Andrew: At the same time, there are many other ways of making payments, right? There’s of course credit cards. You can get points, you can get air miles in a pre-Covid world… hopefully in a post-Covid world. There’s also cashback and we have 0% interest instalment plans from banks nowadays.
Andrew: What advantages does BNPL have over all of these other payment options?
Arvin: Yeah, I think one of the things that sets us apart from say, a credit card for example, is that you need to have a credit card. You need to be banked as a user, as a starting point and maybe outside of the Singapore context, this is even more powerful. You don’t need a credit card to use Hoolah. I think that’s really interesting. Even in Singapore, a lot of our users are using a debit card to make that purchase.
Now what’s the motivation behind that? We’ve done a bit of analysis. We’ve spoken to some customers. There’s a few different reasons. One, some customers like using money that they have and their debit card represents money that they have, which is a really interesting approach to it. Two, they have a lot of control about the repayment. They can pay early if they wanted to. They can be very early if they wanted to and they can manage that cash position a lot better as a result. Three, there’s bit of distrust around traditional players because there’s always the small text, the hidden T’s and C’s.
Andrew: That’s right.
Arvin: I think if you’ve ever missed a payment on a card or you’ve looked at what the underlying processing fees on some of the traditional instalment products, you start to realize that it adds up quickly. I do think there’s a role for those products. I’m not sure that we tackle that type of product though. I think a lot of times, a retailer will ask us, “oh, I’ve got an IPP plan. I don’t need BNPL”. We’ll say “who does that cater to? Tell me a little bit about those customers who are using an IPP.” It tends to be… fairly affluent, has access to a credit card already with a decent limit, doesn’t mind their limit being locked up for whatever period of time, 12 months, whatever it is and they don’t get the points as well. The points don’t apply to IPPs , which is interesting.
Andrew: Something to take note of.
Arvin: It is. I don’t push this out there as a selling point. We try to stick to the business model as the key selling point. We’re short term. You get past it quickly. There’s a psychological element of not having something linger over you for a year or two years as well. That’s really important for us. We probably help you get access to less expensive products as well.
So it’s not about making a $10 000 purchase using the BNPL. That’s not even in the consideration zone. So I’ll tell the retailer if you have products or a basket… home furnishing, probably a great place for this. We’ll help you get the sofa and the rug and get it nicely laid out in the living room. But if you’re refurnishing your entire house, we’re probably not going to be the solution for that and it’s okay for us to understand what we’re not as well.
Andrew: I might be asking for too much, but are there considerations to include rewards points or even a promotion, a discount if you use BNPL? That will put you on a better position with those other payment options.
Arvin: Yeah, absolutely. So in terms of what we’re doing from a consumer engagement standpoint, we’ve built our loyalty program. We’ve started to release parts of that now to the market, the long term place to do a lot more in that space and especially to really support those customers who’ve gotten to know us and that we’ve gotten to know as well over the years and thank them for that great service that they’ve shown.
So it doesn’t need to be something super dramatic, but just being able to celebrate those customers that support you over the years and come back and use the service. I think it’s really important for us to do something along those lines. How it manifests, we’ve done a lot of research. We’re still thinking through some of those elements, but we will launch something that will reward those customers more.
Andrew: Okay. Going back to a basic question: so am I paying more about BNPL? For example, something costs $600 and I make three payments. It’s $200, it’s $200…?
Arvin: That’s it. It’s one of our core principles. It’s a term called surcharging on a payment method. We don’t allow surcharging on…
Andrew: Merchants can’t do that.
Arvin: Correct, and actually, we’ve had situations where a shopper will write to us. It’s only happened once, a shopper writes to us and says, “Hey, I got charged a premium for using…” Right away, we shut it down. So it’s a really important principle for us. It’s also the right outcome, I think for retail, right? We don’t expect Hoolah to be 80% of a retailer’s volume. Thats not where the demand is. It’s probably more in the 20 – 30%. Some of them hit the 40%, 50% mark depending on the type of products.
But generally, we don’t expect to be 80% of your payment method. So let customers have that choice of choosing the preferred payment method. We’ll be there, we’ll play a role. We’ll help you get access to a specific group of users. We’ll bring a group of users to your shop as well, but it’s quite specific in that way.
Andrew: Any tips and strategies for using Hoolah?
Arvin: Plan on buying the things that you need as always. So consider what it is that’s going to make life easier. The right investment, good quality products. Generally, the type of advice I take when I’m trying to buy something myself or that I would give to a close friend: make sure it’s within your budget. Don’t think that this is something that’s just… you kind of do it and you forget about it. Make sure that you have either cash in the bank or really the cashflow coming to be able to make your future payments. Those are the things that are really important, regardless if it’s with Hoolah or any other payment method out there even if you’re using a traditional card. Just make sure you do have those funds to make those payments.
We lay out our store directory in a specific way that customers can just search directly for what it is that they’re looking to find. You don’t have to go through endless scroll, which is a tactic… I think out there. We give you a search bar immediately, you can search for exactly what it is that you’re looking for. We’ll try to highlight a few merchants that will be able to deliver that product.
Andrew: The tactic you’re referring to is that if I see more, I spend more, I buy more stuff?
Arvin: Yeah. It doesn’t work for us because we have this in-built mechanism that stops you from overpurchasing. So we actually want you to get the product that you want to get, because if you’re happy with it, you’re going to make the repayments against it. You’ll be happy with the outcome and then you’ll come back when you need to buy that next item and cut down on impulse buys.
It’s almost like non-intuitive or against the intuition of the social media strategy. But for my background, being in payments and being what it is, it’s about trust building. We want to build long-term trust with a customer and this is an important way to do it.
Andrew: Okay. Good thing that BNPL is relatively short term, 3 months, 6 months… so look at your cashflow, make sure you can pay up. If you have a friend who’s overextending his or her credit, what would you say to that person?
Arvin: The only way to nip that in the bud is to stop any of the bleedings. You stop spending immediately. You can return the products from time to time. That is an option to help your cashflow if you haven’t used the product. There is an option to return sometimes and especially if you’ve seen yourself slip in and make an overextended purchase, it might be worth considering return or refund to be able to give yourself that cashflow back and give yourself the breathing room.
So I think it’s an option that folks don’t necessarily consider a lot of the times, but it is there. It’s on the table. I think if you’re chatting with a close friend about this, you want to make sure that the inherent behaviour is being changed, like they are being more thoughtful about what it is they buy, when they buy it and not just jumping from sale to sale.
So yeah, some of the things I would… maybe lay off some of the sale newsletters and things like that. That kind of drives some of that. But for the most part, I think it’s just… take ownership of where you are financially, understand what it is that you can spend and for folks who do have a tendency towards more impulse, you need to write it down. You’re going to have to write down and document where your finances are. You need to make a chart of it. You need to go old school, use a spreadsheet, but put it down so that you can understand what it is that you’re able to spend. There’s a lot of budgeting apps out there these days that can help you do that more effectively.
Andrew: Okay. So come as a friend… and they trust you. Try to help them out.
Arvin: My spreadsheet was given to me from a friend who I respect his ability to do financial planning.
Andrew: Budgeting spreadsheet?
Arvin: It’s a budgeting spreadsheet. He built it for himself and just gave me a blank copy that I could build on top of. It was exactly that, I was just reaching out to a friend for help and yeah, they were able to help out.
Andrew: Talking about trust and you mentioned trust earlier and you’ve been in FinTech for a while. So what are the things that happened that shaped your decision to make trust such an important part of the company?
Arvin: I think inherently, anytime somebody is putting money in something or making a payment, they want to make sure that it’s safe, it’s reliable, it’s with a business that they can trust. Again, it was the feedback that we got in those early days. In the early days, we had the founding team’s faces and stuff like that on the website and we just linked through to LinkedIn anyways, but even just having our faces on a website was important in those early days as well to establish that trust.
Now, it’s about treating customers well. It’s about not hiding anything. It’s being transparent. It’s all of those other elements that help us build trust at scale… that we’ve learnt that was important to get customers to actually use the service in the first place.
Andrew: Do you see anything in the industry that suggest that they might be going against that philosophy? I don’t know… some predatory practices? I mean the finance industry sometimes have not such a good reputation.
Arvin: Yeah, that’s a fair call out. I do see it from time to time. I’ll flip on Instagram and I’ll see something that kind of stands out and again, it’s this short term spin-as-much-as-you-can type of mentality and I think that’s one of the things that we’ve really tried to stay away from with our customers as well.
Even if we ran a promo sale on social and you were at that point where you’re overextended, sorry, you can’t enjoy the promo either. Unfortunately… again, tough conversation, but it’s for the greater good in that circumstance.
I think where I see folks getting a little bit carried away is that everybody’s eligible, right? Everybody shop this weekend or the next… whatever, three days or whatever it might be. I think it just creates a cycle that’s not sustainable for customers in general. So that’s something I’d like to see a lot less of in the market out there with financial products. I also think generally, the discounting approach to e-commerce, at some point there’s going to be a cliff where things fall off.
Andrew: There is a sale every month now, right? It’s not just 11.11.
Arvin: To be fair, the data for us… I’ll be open about it. 11.11, November is where we see the real spike in usage of BNPL.
Andrew: Woah… and does it cause more people to not being able to pay?
Arvin: No direct spike in non payments or late payments or anything like that. It’s just… I think customers anticipate it, they plan for it. The serious shoppers are… “I’m going to wait for the biggest discounts now because I know when it’s coming.” Everything else is kind of a mini sale compared to… really, that time. But we see it and I think the interesting thing about being in other markets now and expanding is that we actually see the cycles of retail start to take shape and they’re different, depending on which market you’re in. So this is one of the fun learnings as well [indiscernible] you kind of gett a pattern start to form… of some of this stuff.
Andrew: Okay. Before we close up this part of the conversation, anything else you want to highlight about BNPL?
Arvin: I really think that it is a great opportunity for customers to make use of something if they can use it in a responsible manner. I think the BNPL providers out there, we have a really important role to play in educating customers on how to use it the right way. At Hoolah, we take a proactive approach to this. It’s been in our vision statement from day one, our inception point. It was kind of crazy, we had “responsible affordability” printed on our T-shirts and one of the folks told me “it’s a bit of a mouthful.” It’s a big statement. It’s long.
I’m like it’s long, but it’s important. It might not be catchy, but it’s important. It’s in our vision statement. We create this value for consumers and merchants, but we do it in a responsible manner and that’s held true ever since, whether it’s in how we hire and the people that we bring on board or how we go about the marketing and do other things. It’s really important now. I’d like to see the rest of the industry, play a bit more of that responsible aspect in how they approach this as well.
Andrew: All right. Thank you Arvin!
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Three questions for you.
Andrew: First question. What is one core life principle that you hold?
Arvin: There’s this concept of working hard and working smart, and I think it’s important to do both depending on the circumstance. We should always be looking at being more efficient but hard work also has its merits because there’s no better feeling than seeing that outcome when you know you’ve put that sweat and effort into it. But it also means that you don’t get stuck that that’s the only way to do it. You keep improving and you keep working smarter over time as well. I know it’s not a very snappy principle but it’s one of those things that I do live by.
Andrew: Yeah, okay. What’s the one piece of financial advice that you think should be shared more often? You’ve shared a few today, but let’s go for one of it.
Arvin: There’s nothing wrong with writing down what you spent. I think folks need to hold themselves accountable and do it more often. It’s okay. It’s scary sometimes because… oh I’m gonna over-manage or micro-manage myself a little bit, but really, when you start to write it down, you’ll start to see the value. So don’t be afraid to put it down, whatever method works for you, whether it’s an app on your phone, it’s a spreadsheet on a computer, it’s a notebook that you carry. Whatever it is, just start writing it down and you’ll start to learn a little bit more about yourself as well.
Andrew: Okay. What is one area of your life that you are giving additional focus right now?
Arvin: Mental health. It’s a hot topic, especially given the Olympics and some of the conversations happening. Right now, maybe it’s the counterbalance to the work hard, work smart type of attitude. We work really hard. We’re in startup mode. We’re grinding all the time. We’re faced with lots of ups and downs. The emotional roller coaster is exactly, as people say it is, you have really high highs and some really tough lows.
So it’s important to step away from it from time to time and take that mental moment to rest and recover. For example, this past Friday, we actually had everybody take the day off. Mental Health Day next week, long haul weekend as well. It doesn’t matter. We’re going to take a day. It’s Mental Health Day. I don’t want to see anybody on Slack. I don’t want to get an email from anybody.
It’s funny, my team called me out and said “you need to do it as well. You’re going to have to practice what you preach a little bit.” Okay, I sat there in front of the computer. I watch it in front of the TV, I watched the Olympics, enjoyed it, just zoned out a little bit and really you know… I feel super, super energized as a result of it. It was really necessary.
So I think it’s something that I will be focusing a lot more in terms of that personal mental health piece.
Andrew: I’m really glad to hear that because number one, we are talking more about it, which is a good thing, to raise awareness. And to hear companies actually taking steps, proactive steps, instead of just talking about it, right?
Arvin: It’s really difficult to push folks to take vacation days as you would normally. I remember it was ’18, early ’19, it’s quite okay. “I’m going for a weekend to Bali.” “Yeah, sure. You got covered, all good.” “I’m going to take a week to go to Europe.” “All right. Cool. You know, we’ll figure it out. We’ll get some backup in place.” I went to Africa for three weeks in 2018 as a founder… my team, we figured it out. That was easier to do given the circumstances, pre-Covid world.
Now, it’s hard to tell somebody “take a day off” or “take a week off. They’re like “what am I going to do with it? Where am I… I can’t go anywhere.” So we just have to force the issue and say “you know what? Everybody’s going to turn off”, so you don’t feel any type of pressure to be on, right? Everybody’s doing it…
Andrew: I’m taking leave, but I’m available. You can still text me.
Arvin: Exactly, and we wanted to just nip that in the bud and we looked at different options. This was the one that made sense. I had the team off on Thursday afternoon and I was like “what are you guys doing?” Just casual update, what’s happening in your life over the next few days and most folks… “I’m going to rent a car, just drive around the island a little bit.” “Sure, go for it. Have fun.” “Netflix, just binge watch something.” “Cool, it sounds good.” A few folks are watching the Olympics and just relax a little.
Andrew: And going back to financing in Hoolah, financial turmoil certainly affects your mental health.
Andrew: So your motto: responsible affordability.
Andrew: My takeaway for today.
Arvin: Awesome. Thank you.
Andrew: Thank you!
Arvin: Appreciate it so much. Thank you so much.
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