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As buy now, pay later (BNPL) continues to grow, New Zealand and Qatar have unveiled plans to bring the product under regulatory oversight.
On Wednesday (August 9), New Zealand’s Ministry of Business, Innovation and Employment released new plans to bring the BNPL sector under the country’s existing lending law but with the obligations applied “proportionately”.
The government said its objective with the new regulation is to “reduce the risk of financial hardship being caused or worsened by BNPL”, while ensuring that “it remains viable and competitive” as a low-cost alternative to traditional forms of credit.
Like in many other countries, BNPL falls outside New Zealand’s regulatory framework for credit products, which has raised concerns about whether there are sufficient safeguards to protect consumers.
BNPL providers were trying to allay those concerns by proposing a voluntary industry code, similar to the one that exists in Australia.
However, progress on finalising the code appears to have stalled after the minister of commerce and consumer affairs stated that he believed the code did not go far enough to address the financial hardship caused by BNPL, which has been the key concern for policymakers in New Zealand.
In October 2022, the government announced that it would bring BNPL under the scope of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) but with limited requirements for affordability assessments.
As per that proposal, BNPL providers would have been required to make an affordability assessment for purchases of more than NZ$600 and participate in so-called “comprehensive credit reporting” below that threshold.
The government now says the relationship between BNPL and financial hardship is not as clear as it thought and the evidence of hardship continues to be “limited” and “often anecdotal”.
The government therefore proposes to exempt BNPL providers from affordability checks altogether. Instead, BNPL providers will be required to get a comprehensive credit report when the consumer signs up and have a policy detailing how they will use this information in lending decisions.
Adherence to that policy will be monitored and, if necessary, enforced by New Zealand’s Commerce Commission.
Since credit reporting has a minimal cost, the paper said it “should not interfere significantly” with BNPL lenders’ existing business models.
“This option strikes the right balance between preventing consumers already in financial hardship from using BNPL, while not substantially increasing the burden on both lenders and consumers,” the paper argues.
The government does, however, leave the door open to adding the affordability requirement in the future.
According to Duncan Webb, minister of commerce and consumer affairs, the Cabinet decision is the “first step” for the regulation of BNPL but affordability assessments could be required “at a later date”.
The Cabinet decision was welcomed by a number of BNPL players.
A spokesperson for Zip told VIXIO that they “are pleased to see that the government has struck a balance between providing customer protections while tailoring the approach to continue to encourage innovation and access to low-cost credit products”.
The spokesperson added that they believe the regulations will provide greater clarity and consistency across the sector, deliver confidence to stakeholders and build on the existing customer trust.
Similarly, a Clearpay spokesperson said: “Today’s announcement from the government is an important step in the development of a fit-for-purpose regulatory framework that recognises BNPL as a lower risk and lower cost option than traditional credit products.”
As reported by VIXIO, the once thriving BNPL sector has been hit hard in recent months. Across the water in Australia, the current high-interest rate environment has lead to several companies announcing a retreat from the market.
In February, OpenPay became the first Australian Stock Exchange (ASX)-listed BNPL to enter receivership, while Affirm announced that it would wind down its Australia business to focus on its core markets such as the US.
Later on, LatitudePay and Fupay announced that they had closed the door to their BNPL operations.
Similar to New Zealand, Australia is also in the process of bringing the sector under a regulatory framework. The country held a consultation on BNPL regulations at the tail end of 2022.
Stephen Jones, minister for financial services, said his government will recognise BNPL as a credit product by the end of this year.
Qatar publishes BNPL regulations
On Saturday (August 5), the Qatar Central Bank also released a document laying out regulations for the sector.
The rules require firms that provide BNPL products to set up an office in Qatar and hold QAR5m ($1.3m) minimum capital as initial paid-up capital, or 15 percent of the outstanding loans, whichever is higher.
Firms must also obtain a licence from the central bank, while their directors and key management figures will have to be deemed “fit and proper” to carry out their tasks.
The central bank praised BNPL as a payment method that not only “allows customers to indulge in their desired purchases without straining their budget” but also provides them with “multiple benefits like easy budgeting and planning future payments”, according to a statement cited in local media.
“Additionally, most BNPL services do not charge late or other fees if the instalments are paid on time, making it accessible to a wider range of customer segments,” the central bank said.
