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South Africa’s booming buy now, pay later (BNPL) industry is pushing for formal regulation as the payment model expands rapidly among consumers. The call comes as the South African Reserve Bank said in its Financial Stability Review, released this week, that it continues to monitor developments in the BNPL market, warning that the products could contribute to over-indebtedness because consumers can hold multiple payment obligations simultaneously while facing fewer affordability checks than traditional credit products.PayJustNow, one of the country’s largest BNPL operators, says it has been lobbying for the sector to be brought into a formal regulatory framework, including the reporting of repayment behaviour to credit bureaus, even as it argues that BNPL should not be classified as conventional credit.COO Dean Hyde said the absence of clear rules posed the biggest long-term risk to the industry’s sustainability.“We cannot have a payment product in the market that is completely unregulated when it’s being used by millions of South Africans,” Hyde said. “But it’s really important that regulation is appropriate for the buy now, pay later market, which has as its foundation financial inclusion. This was not a product that was launched to replace current credit products. It was launched so that we could give South Africa the alternative payment method to manage their cash flow ... and give them access to the credit market.”BNPL allows consumers to receive goods immediately and spread interest-free payments over a short period, typically six weeks, three months or six months. However, missed instalments result in heavy penalties. Hyde describes the model as effectively “turning a debit card into a credit card”. The market has expanded rapidly in recent years. PayJustNow now has more than 4-million registered users, and average transaction values are around R1,400, with customers typically paying a third upfront.Hyde described BNPL as “the fastest-growing payment type in the world”, with global trends increasingly reflected in South Africa.The payment option is now widely available across online and physical retail channels, spanning categories from fashion and homeware to tyres and electronics, while new areas like health care are emerging as areas of growth.Despite the rapid adoption, concerns are mounting about the potential risks BNPL poses to consumers and the broader credit ecosystem.Industry players, including PayJustNow, have called for BNPL transactions to be reported to credit bureaus so that repayment behaviour can be reflected in credit scores. Hyde said the company has been engaging regulators and industry bodies on the issue for about two years.“We’ve been wanting to report for the last two years because it allows people to build credit scores,” he said. “But we cannot simply report under the same categories as other credit providers because we’re not a credit product.”BNPL operators argue that their offerings function primarily as payment tools rather than loans, with no interest charges or fees provided customers repay them on time. PayJustNow says approximately 98% of its users meet their repayment obligations, with default rates below 2%.However, there is concern that the same features driving BNPL’s popularity — quick approval and low upfront costs — may encourage consumers to overspend, particularly those already under financial pressure. Hyde acknowledged the need to balance financial inclusion with consumer protection, pointing to research by TransUnion showing that about 40% of BNPL users fall into thin-file or underserved credit segments.“That’s exactly why appropriate regulation matters,” he said. “We don’t want to limit consumers’ ability to access credit, but at the same time we want to make sure they can build their credit profiles.”TransUnion’s latest white paper on BNPL suggests the product is emerging as more than simply another payment option, describing it as a response to changing consumer expectations, the growth of e-commerce and mounting pressure on household budgets.“Consumers are increasingly looking for payment options that are transparent, predictable, and easier to access than traditional forms of credit,” the report said. “BNPL has responded to that demand with a model that feels lighter, simpler, and more closely tied to the moment of purchase.”The research also challenges the perception that BNPL primarily attracts higher-risk borrowers. While BNPL users tend to be younger, earlier in their financial journeys and more likely to have limited credit histories, TransUnion found little evidence that they perform worse than traditional credit consumers.According to the study, BNPL appears to act less as a substitute for traditional credit and more as an entry point into the broader credit ecosystem. Consumers who use BNPL generally start with fewer conventional credit products than their peers but are more likely to deepen their participation in credit over time.At the same time, TransUnion cautioned that decisions around how BNPL is reported, classified and integrated into the credit system require careful consideration.“BNPL represents more than a trend — it’s a structural shift,” the report said. “The real challenge lies not in the product itself, but in how the system responds to it.”It calls for a collaborative approach by regulators, lenders, BNPL providers and credit bureaus to avoid unintended consequences for financial inclusion and credit access.According to Hyde, the National Credit Regulator and the Financial Sector Conduct Authority are in the process of establishing a working group to examine the market.The Reserve Bank noted that BNPL transactions are typically associated with higher basket values than other payment methods and warned that the perceived affordability of interest-free instalments could increase the risk of over-indebtedness. The Bank said that while BNPL products function similarly to consumer credit, they generally fall outside the scope of existing credit legislation because no interest is charged. Business Times
