In Indonesia, pay later services leave some drowning in debt

by Barbara R. Abercrombie
0 comment

Ubud, Indonesia – Nadhea Putri’s mounting debt started with a single mobile phone purchase.

Putri, who lives in Kuala Kapuas, Central Kalimantan, about 1,600 km from Jakarta, had been dreaming of an upgrade to a newer model for months but didn’t have enough money.

Then, earlier this year, the 21-year-old college student saw a buy now, pay later (BNPL) option offered on the checkout page of her favorite online shopping app. It took her less than 24 hours to activate the payment method, and the phone — which cost nearly five times her monthly income — was finally hers in February.

More than four months later, Putri is still struggling to repay the balance, along with rising interest rates.

“I’m too scared even to use my new phone right now,” Putri told Al Jazeera, asking to use a pseudonym to protect her anonymity. “Every day, collection agencies call me more than 20 times. I feel terrorized, but I can’t tell my parents. I don’t want to burden them.”

BNPL, which allows customers to pay for goods in installments at various interest rates, has helped to close a significant credit deficit in Indonesia. Credit card penetration in the country is notoriously low, at a paltry 6 percent in 2021, while nearly 65 percent of Indonesia’s 275 million population does not have a bank account.

As the country’s population has become increasingly online in recent years, digital payment methods such as BNPL have experienced an increase in use. Indonesia’s mobile internet penetration, at 68 percent in 2021, is now among the highest in the region and is expected to reach 79 percent by 2025.

Smartphone users like Putri have been drawn to BNPL as a quick and easy way to buy items they might not otherwise be able to afford.

“I took a photo of my ID card and uploaded it to Shopee to activate my SPaylater,” Putri said, referring to the BNPL service provided by the e-commerce platform Shopee.

“It’s very simple. After verifying it, I could use the credit to make payments on the platform.

Barriers to Credit

Credit card applicants in Indonesia are generally required to provide proof of monthly earnings and a healthy credit score, except for many low earners such as Putri, who earn $95-$300 per month between college writing for a website of a content provider.

Shopee, headquartered in Singapore, where Putri regularly shops, is one of Indonesia’s most visited e-commerce platforms. The platform came in second to homegrown Tokopedia last year, with 126 million monthly visits in Q3 2021.


Shopee’s in-app BNPL service SPaylater is one of the most popular of the many BNPL options in the country and is the most searched-for deferred payment topic on Google between 2018-2021, according to DSInnovate’s 2021 Indonesia Paylater Ecosystem Report. The service offers a fixed interest rate of 2.95 percent, with loan terms of one, two, three, and six months.

While there is no publicly available data on the socioeconomic makeup of SPAylater’s users, the service’s branding focuses heavily on lower- and middle-income Indonesians.

In February, Shopee Indonesia released a series of ads featuring Nassar Sungkar, aka King Nassar, a superstar in the dangdut folk music genre that is especially popular among the lower socioeconomic classes.

One ad shows a woman standing in front of a family business that sells food, looking at her phone with a concerned expression. “I want to go shopping, but I’m broke,” she says.

A split second later, Sungkar appears, dressed in a bright, superhero-like cape, before singing and dancing. “Let’s use Spaylater. Buy now, pay later!”

Shopee declined to comment when Al Jazeera contacted him.

Shopee has used folk singer Nassar Sungkar, or King Nassar, to promote his BNPL service [Courtesy of Risyiana Muthia}

“I saw the commercial almost every day on television,” Maisaroh, a Spaylater user, told Al Jazeera. “My 16-month-old likes it so much that she copies the dance whenever it is on.”

Like Putri, Maisaroh, who lives in Subang, West Java, is neck-deep in BNPL debt.

“I used the Shopee app very regularly,” Maisaroh, 30, said. “We live far away from the city, so online shopping makes it easier for me. I don’t need to go outside to shop; the products will be delivered to my doorstep.”

Hoping to make extra money, Maisaroh began using BNPL to purchase goods to resell to her neighbors.

“In the beginning, everything went well, and I could even make a little profit,” she said. “Then, a family member fell ill, and the money meant to pay for our monthly debt had to be used for medical treatment.”

When her husband’s monthly salary of about $200 proved inadequate to keep the family afloat and meet the BNPL repayments, Maisaroh purchased more items to resell to make enough money to pay back their debts, only to make the problem worse.

“We can’t even make ends meet,” Maisaroh said. “How could we pay for those? Then we downloaded many lending apps to borrow more money and buy us some time. But it’s been almost six months since the whole thing started, and now I have more than 30 million Indonesian rupiahs [$2,024] in debt.”

While Indonesia expands access to financial services, most of the population still suffers from low financial literacy. A 2019 survey by Indonesia’s Financial Services Authority found that the country scored 38.03 percent on the financial literacy index and 76.19 percent on the financial inclusion index, indicating a noticeable gap in the public’s understanding of the available financial services to them.

Lina Hananto, founder and CEO of QM Financials, which offers financial literacy programs across the region, said the lack of knowledge puts people at risk.

“If financial inclusion is not accompanied by good financial education, it can lead to predatory inclusion,” Hananto told Al Jazeera. “The lack of financial literacy among Indonesians, especially those living in rural areas, can put many in a vulnerable position. Especially when it comes to unsecured loans with high-interest rates.”

“Now people can get loans from various fintech applications. Without understanding the real risks and consequences, the cultural embarrassment associated with being in debt can quickly diminish,” Hananto added.

Ligwina Hananto, founder and CEO of QM Financials, believes lack of financial literacy puts Indonesians at risk [Courtesy of Ligwina Hananto]

Sekar Putih Djarot, a spokesman for Indonesia’s Financial Services Authority, said that while poor financial literacy is an issue, the country’s debt remains controlled.

“The risk profile of financial services firms in April 2022 was still relatively well-maintained, with the gross non-performing loan ratio of banks at 3 percent and the gross non-performing financing of financial companies at 2.7 percent,” Djarot said. Al Jazeera.

“That said, people need to understand that BNPL is a form of debt, so they need to be able to measure their financial standing before deciding to use it.”

When asked if credit restructuring or other assistance is available to heavily indebted borrowers, Djarot said: “They can contact the lenders first, and if there is a dispute in the process, they can report it to us, and we can facilitate a mediation.”

For struggling borrowers like Maisaroh, it’s hard to see much hope.

“I often have suicidal thoughts,” she says. “They sit on us every day. Tell me, what happens to us if we can’t find a way to pay?”