Buy Now Pay Later: Through the Lens of the National Credit Act

Introduction

Buy Now, Pay Later (BNPL) products have gained rapid traction in South Africa by positioning themselves as simple payment tools rather than credit. This trend is not unique to South Africa as internationally BNPL has taken off like credit on steroids. BNPL platforms like Klarna, Afterpay/Clearpay, PayPal’s Pay in 4, Zip, Tabby and Tamara, and Affirm are taking the consumer market by storm. Well-known South African BNPL examples include PayFlex, which allows consumers to split their online purchases into four interest-free payments, paid over six weeks. Other notable BNPL providers in the South African market are PayJustNow and Happy Pay, both of which offer similar instalment options at participating retailers.

This framing is commercially attractive, but legally unstable. By presenting BNPL as a payment tool rather than a traditional credit product, providers broaden their appeal to consumers who may otherwise be excluded from mainstream credit markets. This includes unbanked individuals, those who lack credit cards, and younger people who are new to credit. BNPL accessibility stems from its minimal entry requirements, making it an attractive alternative for those unable to qualify for conventional credit facilities.

When analysed through the National Credit Act (NCA), BNPL sits in a grey area that creates material risk for consumers and significant exposure for providers. The core issue is not whether BNPL looks like credit in marketing terms, but whether it functions as credit in substance.

The Global Requlatory Shift

South Africa is not alone in questioning the ‘payment tool’ label. Recently, major markets like Australia and the UK have moved to bring BNPL under formal credit licences, recognising that interest-free does not mean risk-free. South Africa is following a similar path. The regulator is increasingly focused on ensuring that all forms of deferred payment are treated equally to prevent consumers from falling into ‘invisible’ debt traps. 

BNPL and the Definition of Credit Under the NCA

The NCA adopts a deliberately wide definition of credit. An agreement constitutes a credit agreement if payment is deferred and the consumer is required to pay any fee, charge, or interest in connection with that deferral.

Most BNPL products involve deferred payment. The more contested issue is cost. BNPL providers typically argue that there is no interest and no fee payable by the consumer, particularly where the merchant funds the BNPL provider through a discount or service fee. This argument is fragile. The Act does not require that the cost be labelled interest, nor that it be paid directly by the consumer.

Where the consumer obtains the benefit of time to pay and assumes a structured repayment obligation, the transaction may be recharacterised as credit on a substance over form analysis. Furthermore, the NCA triggers at any fee. If a provider charges a joining fee, a monthly service fee, or a transaction fee, the agreement likely becomes a credit agreement regardless of a zero percent interest rate.

Incidental Credit and its Limits

Many BNPL providers seek shelter under the incidental credit exemption. In simple terms, this is a rule under the NCA, which says that not all types of delayed payments count as formal credit agreements. If you buy something and the shop lets you pay later only because you missed the due date, and they charge you a small late fee, that is considered incidental credit.

However, if the main feature of the product is to let you pay in instalments over time, it is harder to claim this exemption. For an agreement to be incidental credit, no interest or fee can be charged at the outset. Because BNPL is a planned way to borrow and repay money, the incidental credit characterisation is difficult to sustain.

The Consumer Risk and Regulatory Shift

From a consumer protection perspective, BNPL exposes precisely the risks the NCA was enacted to address. Consumers may accumulate multiple BNPL obligations without any consolidated affordability assessment. These obligations are often not visible to credit bureaux, making over indebtedness harder to detect.

Of critical importance, the National Credit Regulator is moving to close these gaps. Recent updates to the National Credit Regulations signal a clear intent to bring these products under the same net as traditional lenders. By expanding mandatory credit bureau reporting and tightening affordability assessment rules, the regulator is ensuring that the era of regulatory ambiguity is coming to an end.

For more information on the National Credit Act and how it protects consumers, read this post.

The Grey Area for Providers

For BNPL providers, the legal risk is not hypothetical. Recharacterisation by the National Credit Regulator or a court could trigger mandatory registration and findings of reckless credit. Importantly, under Section 89 of the Act, if an agreement is found to be an unlawful credit agreement because the provider was not registered, it may be rendered void. This means a provider could lose the legal right to enforce the debt or recover the capital.

The Competitive Divide

Banks and registered credit providers occupy a different position. When they offer BNPL products, they do so within the existing law, following strict affordability and disclosure rules.

This creates a competitive imbalance. The more a provider complies with the law, the more ‘friction’ there is in their sign-up process (such as detailed income checks). Conversely, providers who operate in the grey area can offer a faster, easier service because they bypass these rules. This imbalance encourages ‘regulatory arbitrage’, where companies structure their business specifically to avoid the law to gain a speed advantage. However, as South African regulations are updated, the model used by banks (which treats these products as formal credit) is likely to become the mandatory standard for everyone.

In Conclusion

Viewed through the lens of the NCA, BNPL is less a novel payment innovation and more a stress test for our consumer credit framework. The central question is not whether BNPL should be regulated, but how long it can remain outside a regime designed to govern deferred payment. For providers, legal defensibility will soon matter more than marketing distinction. For consumers, they should be wary of over-extending themselves on multiple transactions and ensure they can afford to make payments on time.

The information provided is for information purposes and does not constitute legal advice. Contact a lawyer should you require assistance. Legal Dynamix is not a law firm and does not provide legal advice on the subject matter contained herein.