UAE enforces new rules for buy-now-pay-later operators

Creative Commons/wuestenigel

• BNPL startups attract funding
• Growth forecast to 2028
• Licence criteria tightened

Updated regulations for buy-now-pay-later service providers and other finance companies providing short-term credit facilities have been introduced by the Central Bank of the UAE.

Buy-now-pay-later (BNPL), a business model that allows consumers to make immediate online purchases and spread their payments over interest-free instalments, has grown in popularity in the Gulf post Covid-19.

Last month, fintech startups continued to dominate funding in the Middle East and North Africa region, accounting for $1 billion of the $1.15 billion raised from investors, the venture capital firm Wamda said. 

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Tabby, a BNPL operator founded in the UAE but now headquartered in Riyadh, accounted for the bulk of funding, with a $700 million debt round. 

BNPL payments in the UAE are projected to see 19.6 percent annual growth, reaching $2.6 billion in 2023, the Dublin-based market research firm ResearchandMarkets said.

The adoption of BNPL payments is expected to maintain steady growth, with a compound annual growth rate of 12.3 percent from 2023 to 2028.

“There was a much-needed vacuum that had to be filled from a regulatory perspective,” said Raymond Kisswany, partner at Davidson & Co, a law firm in Dubai.

“Prior to this regulation, BNPL companies operated in the UAE with their Dubai International Financial Centre unit acting as a non-regulated entity providing technology support for a local onshore entity.”

The new regulatory framework dictates that short-term credit provision can only be conducted by entities acting as agents of licensed banks or finance companies, subject to approval from the central bank. 

The authority defines short-term credit as credit granted for a maximum period of 12 months, used to purchase goods or services without accruing interest or requiring a lien against guarantees or security deposits.

Entities may engage in this activity after getting a licence as “restricted licence finance companies”. 

The regulator said on its website: “The maximum short-term credit extended by a restricted licence finance company or agent to a borrower must not exceed AED 20,000 [$5,445] or three months’ verified net income, whichever is lower.”

The licence will be granted for an initial period of three years and will be renewable for the same periods unless otherwise required by the central bank.

Unlicensed entities involved in short-term credit activities must either apply for licensing or partner with a licensed finance company or bank.

“The regulations are aimed at protecting customers of finance companies and enhancing the overall stability of the financial sector,” the regulator said.

“This new regulation provides a clear licensing directive and regulatory framework that ensures providers are well regulated and will boost consumer confidence when deciding on a BNPL-type payment.” 

Kisswany said he believed the updated regulations will help to boost consumer confidence in BNPL operators.