Buy now pay later: Regulation Around the World

Buy now pay later (BNPL) is a sort of short-term financing that allows consumers to make purchases and pay for them at a later date. There are a different models for BNPL products. Generally these are categorised into split pay, pay later, long-term financing at 0% annual percentage rate, longer-term financing with subsidized interest or fee. Distribution channels for BNPL include merchant checkout, merchant platforms, multi-lender networks, bank credit cards and white label providers (customised store credit cards). The arrangements for BNPL have become increasingly popular with both merchants and customers. Such widespread adoption has led to increasing regulatory scrutiny although in some jurisdictions self-regulation through industry codes have been the preferred route. Regulators are concerned that consumers may not fully understand the implications of entering into a BNPL scheme.

Key considerations include:

• Global – Many new players are entering the payments market with Bigtech players leveraging in particular their existing digital platforms. BIS has issued an Occasional Paper on BigTech regulation.
• United Kingdom – The UK Government is proposing to extend the scope of regulation to capture those BNPL firms that are not currently regulated. The FCA has also warned BNPL firms about misleading adverts.
• United States – The CFPB has recently been looking at BNPL and has issued a report which makes it clear that the agency plans to increase the regulation of the BNPL industry. The FTC has also issued a clear reminder that basic consumer protection ground rules of the FTC Act apply.
• Canada – While BNPL lenders usually do not choose to establish themselves as a federally regulated financial institution they do have to carry on business in accordance with provincial regulatory requirements. Having issued a pilot study on BNPL services in Canada the FCAC is currently monitoring the evolution of the BNPL market in Canada.
• Europe – BNPL services generally fall outside the scope of the Consumer Credit Directive. The European Commission has issued a proposal for a revised Consumer Credit Directive which is currently being finalised. The draft Directive as proposed by the Commission brings within scope BNPL schemes but some BNPL schemes may fall within an “optional partial derogation” proposed by the Council.
• Netherlands – The Consumer Credit Directive has been implemented in the Netherlands and BNPL services generally fall outside the scope of regulation. The Netherlands supports the new Consumer Credit Directive.
• France – BNPL schemes are excluded from the consumer credit regime when specific conditions are met. However, French banking rules still apply and BNPL is considered to be credit, therefore bringing it within scope of the French banking monopoly rules.
• Germany – BNPL services and their offer have to be carefully construed as they may trigger licence requirements. It has to be ensured that use is made of existing exemptions. 
• Luxembourg – Like other Member States Luxembourg has implemented the Consumer Credit Directive via a Consumer Code which provides for an exemption from consumer credit regulation where the total amount of the credit is less than EUR 200 or more than EUR 75,000. Depending on the business model, consideration may also have to be given as to whether a financial services, lending licence or payment services licence is required.
• Italy – The Bank of Italy has issued a communication on BNPL schemes to draw the attention of consumers on the prevalent forms of BNPL in the Italian market.
• Australia – BNPL products in Australia are not currently regulated under consumer credit laws and instead many providers of BNPL products adhere to an industry code of conduct. However, the Australian government has recently issued a consultation/options paper intended to close any regulatory ‘gaps’ in the market. In the meantime BNPL products also fall within scope of the Australian Securities & Investments Commission design and distribution obligations.
• Hong Kong – The HKMA has published a webpage stating that BNPL products are not much different from unsecured personal loans and as such consumers need to be mindful of the risks. The HKMA has also issued a circular to authorised institutions on BNPL products.
• Singapore – MAS is closely monitoring the BNPL sector. Currently, MAS is of the view that effective industry self-regulation, through an industry code, should adequately mitigate the risks in the BNPL sector.
• Shanghai – Whilst China does not directly regulate BNPL products it has started to strictly regulate digital finance platforms, some of which provide interest-free short-term financing similar to the BNPL model.
• South Africa – From a regulatory perspective, BNPL models fall outside the ambit of the National Credit Act, 2005 - legislation designed to protect the consumer in the credit market. 
• United Arab Emirates (DIFC) – Some BNPL operators are carrying on business in the UAE through a system of contracts where their DIFC entity acts as a non-regulated entity that only provides the technology aspect for a UAE ‘onshore’ entity.

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