Buy-Now-Pay-Later ("BNPL") services have surged in popularity but face issues like unfair lending practises, disproportionate fees and poor complaint-handling processes. Recognizing the need to regulate this burgeoning industry, the Qatar Central Bank ("QCB") has introduced MENA region's first BNPL-specific regulatory framework (the "BNPL Regulations"). Effective from August 6th, 2023, the BNPL Regulations aims to safeguard customer rights from unfair lending practises.
Definition of BNPL Products/Services
A "BNPL Product or Service" has been defined as a short-term instalment-based credit product extended to customers (offline or online), enabling them to purchase goods or services and repay the associated transaction amount over a period of time ("BNPL Product/Service").
The BNPL regulations prescribe a set of conditions that must be met by a BNPL Product/Service:
- Interest-free: Must extend interest-free credit to customers.
- Short term: Repayments should be divided into instalments, with a term not exceeding 12 months.
- Customer base: Natural persons (above 18 years or older).
- Unsecured lending: Must be an unsecured lending offering.
- Credit risk: Must be undertaken by the service provider.
A BNPL Service/Product that does not meet the aforementioned criteria may be subject to other regulations governing licensed financial institutions (such as finance companies).
Short-term interest-free credit ("STFIC") arrangements typically aren't covered by consumer credit regulations in many jurisdictions, such as the United Kingdom and Australia. Hence, these arrangements have largely been unregulated. Discussions are underway to change this.
Scope of regulations and BNPL models recognised
The BNPL Regulation applies to any entity that provides a BNPL Product/Service in Qatar ("BNPL Providers"), including free zones. The BNPL Regulation expressly recognizes the following BNPL models:
- Mode of access: Both offline and online delivery channels.
- Type of offering: Both upfront credit limit that can be used at participating merchants and option to split payments at time of checkout.
- Customer acquisition models: Both the merchant partner acquisition model (where service is embedded on the merchants' checkout page) and in-platform acquisition model (virtual shopping mall of merchants on the service providers platform).
Interestingly, arrangements where the BNPL Provider purchases the goods or services from a merchant and then sells the same to customers, thereby becoming the merchant itself, are also captured. Such arrangements have been used by BNPL players to avoid credit regulations in other jurisdictions.
Licensing requirement and fees
BNPL Providers must apply for a license from the QCB. QCB will begin accepting applications in September, 2023.
- Licensing fee: QAR 10,000 (~USD 2,750).
- License validity: One year.
- License renewal fee: QAR 10,000 (~USD 2,743).
Capital requirements and performance guarantee
- Minimum Capital: QAR 5 million (~USD 1,371,500) or 15% of outstanding loans, whichever is higher. Any shortfall must be fulfilled within three months.
- Performance guarantee for performance of obligations: 2% of the capital requirement or QAR 200,000 (~USD 54,860) whichever is greater.
Creditworthiness assessment and credit limits
BNPL Providers must have clear credit policies and regularly assess customer suitability based on creditworthiness. BNPL Providers must ensure that the below limits are not breached for any customer:
- Cumulative credit per customer: Must not exceed QAR 25,000 (~USD 6,866) across all BNPL Providers.
- Debt burden ratio (monthly instalments due to QCB licensed institutions : monthly salary): Must not exceed 75% for Qatari nationals and 50% for expatriates.
All BNPL Providers must be registered members in the Qatar Credit Bureau to report credit-related information and assess a customer's creditworthiness.
QCB prohibits BNPL Providers from charging any fee not specifically recognised by QCB, without their its approval. The permissible fees include:
Fees chargeable from customers
Fees chargeable from merchants
Service fee when BNPL Product/Service availed
Merchant fee structured as a customer acquisition cost or transaction fee
Monthly late-payment fee
Any other fee mutually agreed with merchants
The BNPL Regulations prescribe requirements pertaining to anti-money laundering, technology obligations, liquidity and credit risk management, auditing, outsourcing and data confidentiality.
Consumer protection measures
The BNPL Regulations set specific requirements for customer protection, similar to, and in some cases more granular than, those found in industrial code of practises prevalent in Australia and Singapore.
a) Disclosures: BNPL Providers must clearly state consequences of making late payments, fees, repayment procedures, key risks, and complaints handling procedures in customer agreements and their digital platforms.
b) Complaints: BNPL Providers must have detailed procedures for the quick and fair resolution of complaints. All complaints must be acknowledged within 1 business day and resolved within 5 business days, with some extensions allowed.
By spearheading regulations specifically designed for BNPL, Qatar sets itself apart in the MENA region. While other jurisdictions have bought BNPL services within the scope of their finance companies and payment services regulations, Qatar's dedicated BNPL framework allows for more targeted oversight, addressing issues unique to the BNPL industry. Earlier this year, the Saudi Central Bank also released draft regulations for BNPL services, suggesting a growing regional focus on this sector.
At KARM, we prepared our clients for upcoming BNPL regulations from very early on, offering valuable insights into how they could structure their product. As local and regional BNPL regulations emerged, we guided clients to ensure full compliance with regulatory requirements. We held training sessions and workshops for local regulatory authorities, fostering the development of BNPL regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.