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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鈥檚 Ministry of Business, Innovation and Employment new plans to bring the BNPL sector under the country鈥檚 existing lending law but with the obligations applied 鈥減roportionately鈥.
The government said its objective with the new regulation is to 鈥渞educe the risk of financial hardship being caused or worsened by BNPL鈥, while ensuring that 鈥渋t remains viable and competitive鈥 as a low-cost alternative to traditional forms of credit.
Like in many other countries, BNPL falls outside New Zealand鈥檚 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 鈥渃omprehensive credit reporting鈥 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 鈥渓imited鈥 and 鈥渙ften anecdotal鈥.
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鈥檚 Commerce Commission.
Since credit reporting has a minimal cost, the paper said it 鈥渟hould not interfere significantly鈥 with BNPL lenders鈥 existing business models.
鈥淭his 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,鈥 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 鈥渇irst step鈥 for the regulation of BNPL but affordability assessments could be required 鈥渁t a later date鈥.
The Cabinet decision was welcomed by a number of BNPL players.
A spokesperson for Zip told VIXIO that they 鈥渁re 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鈥.
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: 鈥淭oday鈥檚 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.鈥
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, 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 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 鈥渇it and proper鈥 to carry out their tasks.
The central bank praised BNPL as a payment method that not only 鈥渁llows customers to indulge in their desired purchases without straining their budget鈥 but also provides them with 鈥渕ultiple benefits like easy budgeting and planning future payments鈥, according to a statement cited in local media.
鈥淎dditionally, 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,鈥 the central bank said.
