Saudi Arabia regulates buy-now-pay-later, and the rules protect the borrower without killing the product

Saudi Arabia has formalised its regulation of buy-now-pay-later, and the framework is designed to do two things at once: protect the borrower and preserve the product. The balance is the hard part of BNPL regulation, and the framework appears to have found it.

The case for regulating BNPL is straightforward: the product is credit, the customer is often financially vulnerable, and the absence of interest charges does not mean the absence of cost or risk. The case for preserving the product is also straightforward: BNPL provides credit to consumers who cannot access it through traditional channels, at a cost that is often lower than the alternatives, and it does so with a user experience that traditional credit does not match. The regulatory challenge is to constrain the harm without losing the benefit.

The Saudi framework addresses the harm with the standard instruments: mandatory disclosure of the total cost, caps on late fees, restrictions on the extension of terms, and affordability checks that prevent the product from being offered to customers who cannot repay. It addresses the preservation by not imposing an interest rate cap — BNPL is not an interest product — and by not restricting the product to licensed banks, which would have eliminated the non-bank operators that have driven the product's innovation.

The balance the framework strikes is the one that the markets that have regulated BNPL successfully have arrived at: regulate the conduct, not the price; regulate the lender, not the product; and regulate the harm, not the innovation. The implication is that Saudi Arabia's BNPL market will continue to grow, but it will grow with consumer protections that the unregulated phase did not provide. That is the outcome regulation is supposed to produce, and it is the outcome the framework appears designed to deliver.