Buy now, panic later? Why payment system might be too good to be true

‘Buy now, pay later’ payment options have strutted onto South Africa’s financial runway with the swagger of innovation, offering interest-free instalments, bypassing traditional credit checks and boasting sleek user interfaces that make old-school lay-bys look prehistoric.

For consumers, it feels like a dream: swipe today, split it tomorrow. For platforms, it is fintech gold. But beneath the surface of this frictionless façade lies a regulatory grey zone thick with risk, ambiguity and potential litigation, Lerato Lamola and Anél De Meyer, partners at Webber Wentzel, warn.

‘Buy now, pay later’ services allow consumers to buy things immediately and pay for them in instalments over a set period, usually without interest if payments are made on time. However, as usage of the ‘buy now, pay later’ option increases, concerns around consumer debt, regulatory arbitrage and financial exclusion also grow.

Lamola and De Meyer say the central question in South Africa is whether ‘buy now, pay later’ products fall within the jurisdiction of the National Credit Act or the Financial Advisory and Intermediary Services Act (FAIS Act).

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How credit is regulated in SA

The National Credit Regulator (NCR) is responsible for enforcing compliance with the National Credit Act, while the Financial Sector Conduct Authority (FSCA) is responsible for compliance with the FAIS Act.

The consumer credit environment in South Africa is governed by the National Credit Act, which regulates all credit providers and mandates affordability assessments along with other consumer protection mechanisms.

‘Buy now, pay later’ providers often argue that they are not credit providers, as their terms and conditions do not constitute a credit agreement, Lamola and De Meyer say. “They say this is because they charge no interest and operate within a very short payment cycle of four to six weeks. As a result, many ‘buy now, pay later’ firms claim exemption from the obligations they would have under the National Credit Act.”

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Buy now, pay later falls into regulatory void

According to the Intergovernmental Fintech Working Group (IFWG), ‘buy now, pay later’ options currently fall into a regulatory void. The NCR has taken limited action against providers, while the FSCA must still issue clear guidance.

Therefore, Lamola and De Meyer say, consumers face reduced transparency, while there are no guaranteed recourse mechanisms and inconsistent contract terms.

The legal classification of ‘buy now, pay later’ determines the scope of regulatory obligations, Lamola and De Meyer say. “If buy now, pay later is credit, the National Credit Act mandates affordability checks, registration with the NCR and extensive disclosures.

“However, most buy now, pay later operators avoid these obligations by structuring their offerings as payment solutions or deferred billing.”

They point out that the FAIS Act regulates financial advice and intermediary services. “Buy now, pay later providers rarely claim to offer financial advice and as such, FAIS oversight is generally not invoked. This ambiguity causes a jurisdictional conflict between the NCR and FSCA, with little resolution.”

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Do consumers know enough about it?

In addition, they say, South Africans are often unaware of potential late fees, the implications of missed payments, or the lack of legal recourse, especially when providers collapse or change terms unilaterally.

Lamola and De Meyer point out that while legal classification remains unresolved, enforcement action against ‘buy now, pay later’ providers in South Africa has been minimal.

“In practice, the NCR’s enforcement has focused largely on traditional credit providers, while the FSCA’s mandate remains unclear in the absence of explicit statutory triggers.”

They warn that this lack of supervisory clarity raises risks of selective compliance, where only larger players seek legal advice or act pre-emptively, while smaller or offshore providers bypass South African oversight altogether.

“In addition, without designated supervisory frameworks, enforcement becomes reactive, often occurring only after consumers are harmed.”

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COFI Bill could address ‘buy now, pay later’ regulatory gaps

However, they say the Conduct of Financial Institutions Bill (COFI Bill) is envisaged to address these regulatory gaps. “A modern regulatory regime must therefore address not only classification and jurisdiction, but also enforcement mechanisms, investigative powers and coordinated oversight, possibly through inter-agency memoranda of understanding or joint supervisory task teams.

“Without this, regulatory gaps become systemic vulnerabilities.”

Lamola and De Meyer say South Africa’s current dual-regulator model is ill-equipped for the digital fragmentation of modern finance. “The lack of a clear buy now, pay later regulatory framework stands in contrast with jurisdictions where regulators have already expanded definitions of credit to include buy now, pay later explicitly.

“We hope that the COFI Bill will reconcile its institutional gaps and avoid regulatory arbitrage by expanding statutory definitions and enforcing consistency.”

They say it is unclear whether a platform offering ‘buy now, pay later’ options at checkout could be deemed to be providing or facilitating credit under the National Credit Act. “Retailers and marketplaces must consider whether they are indirectly exposing themselves to liability or reputational risk, especially if their partners engage in misleading conduct, impose unlawful fees, or collapse without notice.”

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Verification and affordability assessments important

De Meyer and Lamola say one major challenge for effective ‘buy now, pay later’ regulation in South Africa lies in consumer verification and affordability assessments. “Without a robust credit history or consistent income documentation, many consumers who use these services remain invisible to traditional risk models.

“This opens the door to over-indebtedness, particularly among the underbanked. Future Buy Now Pay Later regulation must therefore account for the reality of fragmented digital footprints and low formal credit participation.

“Buy now, pay later redefined consumer finance by promising simplicity and speed, but the country risks repeating mistakes seen in unregulated microcredit booms if it fails to address its regulatory gaps.

“Global trends show that regulation can evolve in tandem with technology. By embracing reform and cross-sector collaboration, South Africa can lead in creating a safe, competitive digital finance ecosystem.”

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