Digital banking, BNPL: Convenience comes with risks

KUALA LUMPUR: Digital banking, online loans and "Buy Now, Pay Later" (BNPL) services are increasingly popular among consumers, particularly the younger generation.

However, the convenience could also expose users to financial crimes and the risk of mounting debt if stronger safeguards are not put in place.

Malaysian Humanitarian Organisation secretary-general Datuk Hishamuddin Hashim said the ease of opening bank accounts online with digital banking could be exploited by scam syndicates to lure users into becoming account mules.

He said students at institutions of higher learning were among those at risk, with some offered financial incentives to open bank accounts before access was taken over by unscrupulous parties.

"We have encountered cases, particularly involving young people from public and private institutions of higher learning, who were lured into opening bank accounts with offers of small financial incentives.

"After that, scammers took over their banking access for fraudulent activities, exposing them to becoming account mules," he said.

On online loan and credit card applications, Hishamuddin said the convenience could be risky, particularly when financial literacy remained a challenge.

He said consumers should receive proper explanations, counselling or advice before taking up credit facilities to ensure they understood their financial capacity and commitments.

"When things are made too easy, people may be tempted to take out loans even when they do not need them.

"Without adequate financial literacy, their commitments will increase and they may eventually be unable to afford monthly instalments beyond their means," he said.

Hishamuddin said banks should also consider risks faced by customers, rather than focusing solely on institutional risks.

He said banks had a social responsibility to assess borrowers' financial capacity and refrain from approving credit facilities if customers faced a high risk of financial distress.

"Banks should assess not only their own risks but also those faced by borrowers. If granting a loan would expose a customer to excessive financial risk, they should not approve it," he said.

He also expressed concern over the growing popularity of BNPL services, which could encourage consumers to spend beyond their means.

He said the instalment model could cause consumers to focus on small monthly payments without considering the actual price of an item or their accumulated commitments.

"For example, an item may cost RM500 but be offered at RM50 a month. Consumers may feel that RM50 is a small amount, but the actual price is RM500, not RM50.

"This could encourage consumers to buy things they cannot afford, increasing their monthly commitments and exposing them to the risk of default.

"We should not allow BNPL to be offered without limits as those with low financial literacy could eventually be saddled with high liabilities or monthly debt due to spending beyond their means," he said.

Meanwhile, Malaysian Cyber Consumers Association (MCCA) president Siraj Jalil said digital banking had greatly benefited young people, gig workers and small businesses, but security was now a major concern.

He said cybercriminals were becoming more sophisticated by exploiting artificial intelligence (AI).

"Cybercriminals today no longer attack the bank's fortified doors directly. Instead, they exploit AI, which has become part of everyday criminal operations," he said.

He said digital banking also posed challenges for victims, who had to report cases to multiple parties, including financial institutions, police, digital platforms and telecommunications companies, while money recovery remained low.

"Unresolved cases also place a burden on the wider digital economy ecosystem," he said.