As Buy Now Pay Later (BNPL) transforms online shopping in South Africa, regulators face a crucial question: should these flexible, interest-free instalment plans be treated as credit—and if so, how can policy keep pace without stifling inclusion or innovation?
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Buy now pay later (BNPL) is an agreement for the sale of a product where the seller allows the payment to be extended over a specific period of time. These options generally offer interest-free instalments, although fees or interest may apply if payments are missed or delayed.
Historically, in South Africa, BNPL payment terms were common practice in commercial supplier agreements. However, they have more recently entered the retail market, with consumer retailers offering BNPL payment terms in partnership with BNPL providers through embedded finance.
Embedded finance is generally understood to mean the incorporation of financial products or services into a non-financial platform, particularly online platforms. These short-term, low-value instalment products have become a preferred payment method for online shoppers who want flexibility without having to complete a credit or in-store card application
In its research on BNPL, the Intergovernmental Fintech Working Group noted that it currently falls into a regulatory void.
Regulatory ambit question
The central question in South Africa is whether BNPL products fall within the ambit of the National Credit Act (NCA) or the Financial Advisory and Intermediary Services (FAIS) Act.
The National Credit Regulator is responsible for compliance with the NCA, while the Financial Sector Conduct Authority is responsible for compliance with the FAIS Act. However, a further consideration is whether BNPL is merely a payment option.
Regardless of how the offering is defined, the critical question is whether consumers understand their rights and are adequately protected.
As stated above, BNPL payment terms were, and remain common practice in commercial supplier agreements. Under the NCA, various types of credit arrangements are regulated, however, not every arrangement requires the person extending the deferred payment terms to register as a credit provider with the National Credit Regulator (NCR).
Providers who offer incidental credit are not required to register with the NCR, however, they are subject to certain provisions of the NCA.
Defining incidental credit
An incidental credit agreement is defined in the NCA as an agreement, irrespective of its form, in terms of which an account is tendered for goods or services that have been provided to the consumer, or goods or services that are to be provided to a consumer over a period of time and either or both of the following conditions apply:
- A fee, charge or interest becomes payable when payment of an amount charged in terms of that account is not made on or before a determined period or date; or
- Two prices are quoted for settlement of the account, the lower price being applicable if the account is paid on or before a determined date, and the higher price being applicable if the account is not paid by that date.
BNPL payment terms arguably fall within the first bullet of the above definition of incidental credit agreements. Incidental credit agreements have existed since the commencement of the NCA in 2006.
One of the nuances of incidental credit arrangements is that the provider of the credit (ie the lender) is not required to register as a credit provider with the NCR; however, they are subject to the NCA once the payment arrangement becomes an incidental credit agreement.
Academic commentary and case law confirm that an agreement which falls into the definition of 'incidental credit agreement' only becomes subject to the NCA (and its consequences) when the consumer fails to pay by the specific payment date and is deemed to have been concluded only 20 business days after the provider first charges a late payment fee or interest.
This is logical, as a normal arrangement may result in the consumer paying on time per the agreement and the NCA not being triggered. There is a contractual agreement between the parties from the inception, but it only becomes an incidental credit agreement if certain criteria are met.
Clarifying policy purpose
In assessing whether consumers who opt for BNPL are adequately protected, it is important to note that once an incidental credit agreement is created, the obligations under the NCA include:
- Limitations on the amount of interest that may be charged;
- Requirements regarding the disclosure of statements of account;
- Provisions relating to the protection of consumer rights;
- Protection of the consumer’s right to privacy;
- A prohibition against unilateral amendments to the agreement; and
- Requirements governing debt enforcement procedures and debt review.
Most notably, the current construct of incidental credit does not require affordability assessments to be conducted prior to entering into the arrangement.
This is due to the nature of the payment option created by such arrangements: the credit is incidental to the original sale of the goods or services, and there is no guarantee that the transaction will become an incidental credit agreement, as the consumer may pay on time.
Regulation should be specific, proportionate, and aimed at addressing a clearly defined public-policy consideration. Before any regulatory changes are proposed to the construct of incidental credit agreements or BNPL, the public-policy objective that is being pursued should be clearly articulated. What is the mischief that regulation seeks to address?
In answering this question, independent qualitative and quantitative research should be conducted on the retail BNPL industry in South Africa to assess whether a public-policy issue exists that requires addressing and to evaluate the extent of the issue.
Further, there needs to be an acknowledgment that BNPL seems to touch the disciplines of credit, payments and financial services. How the regulators view the offering will influence the ultimate treatment of BNPL.
Balancing inclusion and protection
BNPL has an undeniable social value. It offers access to digital commerce for consumers excluded from formal credit systems. But inclusion without protection is fragile.
Proportionality should scale the intensity of supervision, maintaining access to financial services without diluting the quality of protection. An assessment of the current regulatory protections against real market data should be conducted to assess whether additional and/or amended regulation is required.
The payment revolution underway in South Africa is not just about technology and innovation, it is about trust. Regulators can anchor that trust by defining clear lanes of responsibility and enforcing standards that make digital credit and digital financial services genuinely inclusive and accessible.
If policymakers get it right, South Africa could move from the misunderstanding of “buy now, panic later” to a future where consumers, providers, and regulators all share confidence in the fairness of the transaction.
