(Bloomberg) -- Kazakhstan’s booming online marketplaces are thriving thanks in part to a popular financing offer that’s now drawing regulator scrutiny over worries about inflation and a growing consumer debt burden.
The short-term financing has become a lucrative source of revenue for lenders, such as fintech group Kaspi.kz JSC and Halyk Savings Bank JSC, that get a commission. At the same time, shoppers paying up front often don’t get a discount, according to the country’s financial regulator.
The watchdog in the tech-savvy central Asian country has grown worried that the delayed payment option, known as buy-now-pay-later, and related pricing agreements with vendors on the marketplaces are fueling inflation as well as undermining government efforts to curb increasing consumer debt.
“An individual must be able to buy a good at a price without the hidden fees built in,” said Madina Abylkasymova, the head of the Agency for Regulation and Development of the Financial Market. Her office is working with the competition regulator to create new rules so customers paying cash see lower prices than those using buy-now-pay-later loans, she said in an interview.
It’s unclear what form any potential final regulation would take, or what the impact on banks’ margins would be if officials take aim at online pricing. Furthermore, any rule on pricing would ultimately be issued by the competition agency.
Kazakh lenders’ portfolio of the financing, also known as BNPL, reached 2.3 trillion tenge ($4.5 billion) as of Sept. 1, a 17% increase from the start of the year, regulators said.
Kaspi.kz has called the short-term financing its “most important Fintech Platform product,” accounting for almost half of its total lending last year.
The rise of the financing product is so stark the World Bank highlighted it in a March report, warning that “over-indebtedness and other credit-related risks are a clear concern for at least part of the population” of Kazakhstan.
Kaspi.kz has built the largest online marketplace in the country, controlling more than three-quarters of the business on such platforms, according to the competition authority. The marketplace is so ubiquitous that most vendors find it challenging to survive outside of it.
Fees for merchants on goods sold with the BNPL loans run from 5% to as high as 22%, said Abylkasymova said. She wants to make sure those fees on an annual basis don’t breach a cap on the effective interest rate for retail lending that regulators set earlier this year as part of the fight against ballooning consumer debt. “Any such fee or any other hidden fees must be within the set cap,” she said.
Meanwhile, marketplaces also may charge vendors commissions that get passed on to cash-paying consumers — keeping the prices they pay as high as for the buy-now-pay-later customers.
Kaspi.kz didn’t respond to a request for comment. Halyk Bank said prices for goods and services sold with the help of the short-term financing could rise if regulators implement the plan.
A credit boom has swept Kazakhstan creating a potential vulnerability for the $263 billion oil-fueled economy. President Kassym-Jomart Tokayev criticized banks last year for focusing on consumer loans at the expense of funding companies, resulting in “an increase in risks for the financial system, as well as an excessive debt burden on citizens.”
Sales on digital marketplaces jumped about 60% last year from a year earlier to 1.77 trillion tenge ($3.7 billion), according to e-commerce data from the National Bureau of Statistics.
The platforms run by Kaspi.kz and Halyk have barred merchants from offering lower prices than those on their platforms for the same goods sold elsewhere, according to agreements published on the marketplaces’ websites. That may lead to inflated pricing more broadly, the agency for financial supervision said.
While financial regulator Abylkasymova is pushing for measures to rein in some marketplace practices, her counterparts at the competition authority have been less committal.
The competition regulator said it hadn’t reviewed publicly available agreements Kaspi.kz and Halyk have made that bar merchants from offering lower prices elsewhere than for goods on their platforms. Halyk Bank said its requirement for vendors to maintain a single price was aimed at a “simpler and better” customer experience.
Even with high fees and the government trying to rein in consumer debt, neither consumers nor vendors show any sign of turning away from the online marketplaces.
“Kazakhs uniquely love” the payment-deferral offering, Timothy Liu, founder of US-based Meditation Capital Management LP, said in a February research note. “Without Kaspi BNPL, a merchant’s sales would fall 20-30%,” he said.
(Updates with Halyk Bank comment in the 17th paragraph.)
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