Buy now, pay later firms call for tailored regulations

Companies in a fast-growing, short-term financing sub-sector are hoping the government introduces a regulatory framework for their businesses that does not conflate their operations with those of micro-lenders and others in the space.

Wesley Billett, CEO and co-founder of Happy Pay, told Business Times this week his business and others in the buy now, pay later (BNPL) space have compiled a white paper arguing that BNPL should be regulated as a distinct payment product rather than as revolving credit, which they are not.

“We firmly believe BNPL should be regulated. Right now it is not. We have spent some weeks in a working group with the Fintech Association of SA and several different members of the industry,” he said.

“We are nearing the end of this process and will put together a white paper for the regulatory bodies. There will be industry consultation, and from there a lot of what the regulation looks like will be decided.”

Happy Pay – a Cape Town-based fintech start-up – is a BNPL platform that offers advert-subsidised payments and advertising fees, which subsidise the cost of payments for end consumers. Merchants can acquire new customers while shoppers are able to access cost-free instalment payments.

The business recently closed a $5m (R84.9m) seed round led by global technology investor Partech. The round saw participation from Futuregrowth Asset Management, 4Di Capital, E4E Africa, Equitable Ventures, Summit Deals, the University Technology Fund and Felix Strategic Investments.

Billett said big credit has increasingly been pushing against BNPL, but that these platforms run at the lowest non-repayment levels in the market, as low as 1%. “We don’t want to be in a situation where we’re pushed into an existing regulatory framework that doesn’t match our product; and the value we provide South African consumers is hamstrung.”

He said consumer discipline took hold because customers appreciated the accessibility of the product and did not want to lose it by falling behind on repayments. He pointed to the product’s low-risk nature as clear evidence that BNPL providers in South Africa were applying responsible customer-assessment practices.

Happy Pay has more than 600,000 registered users, is building what it calls an ad-subsidised payments network — a model that removes interest and fees from consumer finance entirely, shifting the cost of instalments to the merchants and brands that actually benefit from the resulting sales.

“We’re building a new version of buy now, pay later, which we call an ad-subsidised network. We allow consumers access to a cash-flow management tool. We access their data. They can split payments into monthly instalments. This comes at zero interest, and for consumers who pay on time, it’s completely free.”

Matthieu Marchand, principal at Partech, said: “We’ve looked at most BNPL companies across Africa, Europe and the US, and we’re clear the best model for creating true value is the one Happy Pay has built. BNPL makes sense only when it delivers real affordability for consumers while helping merchants improve conversion, grow their client base, build loyalty and reduce acquisition costs.”

Billett said Happy Pay was now in scale mode. E-commerce is 6%-10% of South African retail, and while Happy Pay has been constrained by scale, operating exclusively within an online environment, it plans to grow its 600,000 users to millions of registered users “relatively quickly”.

The National Treasury has said the credit-related elements of BNPL products fall under the authority of the department of trade, industry & competition and the National Credit Regulator. Neither responded to questions from Business Times.

While inflation settled on the new target of 3% in February, shocks, including the US-Iran war and above-inflation electricity tariff hikes, are expected to put pressure on household incomes, potentially driving up appetite for BNPL services.

According to the Reserve Bank’s quarterly bulletin for March, on an annual basis, real gross domestic expenditure reverted from a contraction of 0.6% in 2024 to an expansion of 2.1% in 2025, with real household consumption expenditure contributing the most to growth in real GDP, while gross fixed capital formation and net exports detracted from overall growth.

“Growth in real final consumption expenditure by households accelerated to 1.2% in the fourth quarter of 2025, supported by rising real disposable income and improved consumer confidence. Spending on semi-durable goods and services increased at a faster pace in the fourth quarter, while growth in spending on durable and non-durable goods moderated. In line with the continued increase in consumer spending, household debt increased further in the fourth quarter of 2025 as growth accelerated across most categories of credit extended to households.”

Regan Adams, CEO of RCS, said BNPL products had grown rapidly, with millions of South Africans now using these services. Momentum is building towards bringing BNPL products within the regulatory framework, he said. “Limits given to customers have increased significantly — from a few thousand rand to between R20,000 and R50,000 in some cases. However, this credit remains largely unregulated and unreported to the credit bureau.”

He said BNPL providers drew on credit bureau data to make their own lending decisions yet don’t contribute back to it, which undermined the integrity of the information available to every other lender in the market.

“The concern isn’t that BNPL exists — it’s that we have no visibility. When someone applies for formal credit, we can’t see their BNPL obligations. When they enter debt review, those commitments aren’t included. This creates incomplete information for both lenders and consumers.”

Adams said RCS believed that bringing BNPL into the regulated framework — through mandatory bureau reporting and affordability assessments — would benefit both consumers and the broader credit ecosystem by providing transparency and enabling more informed lending decisions.