UAE Central Bank has issued new guidelines for Buy Now Pay Later companies to be licensed and operational

With the issuance of new rules by the UAE Central Bank for the licensing and operation of Buy Now Pay Later companies, consumers in the UAE will have an additional layer of safety. The largest benefit for customers will be protection from falling victim to "predatory practices" or becoming "overly indebted." Regulators in Saudi Arabia and the United Arab Emirates have included that in the new regulations' defenses.

During the initial stages of the COVID-19 pandemic, the Buy No Pay Later (BNPL) movement in the Gulf region gained significant traction among customers. Since consumers were becoming more frugal with their purchases, they were open to trying BNPL choices, which offered a zero percent interest rate.

Customers just needed to pay a processing charge in most of these transactions in order to use the spread-out payment option. Additionally, a lot of these agreements would provide a grace period of one or two months before the first payment was due.

Since then, BNPL sales have increased dramatically in a variety of areas, including electronics and mobile devices, as well as in more frequent purchases. After interest rates spiked and consumers began to feel more at ease with the 0% interest rate on purchases that they made and subsequently paid off in around six months, the sector saw another surge in rapid development.

Over the past three years, the largest players in the Buy Now Pay Later fintech sector in the UAE and the Gulf have raised enough money to guarantee seamless operations. According to the new regulations from the UAE Central Bank, it will be the small businesses or new entrants that must demonstrate that they have the means to compete in the market.

The regulations are rather clear: after receiving clearance from the Central Bank, BNPL firms are permitted to act as "agents" of licenced banks or financing companies.

Once they obtain a licence to operate as "Restricted Licence Finance Companies," they can also engage in this kind of business.

Involving a bank expands the consumer's safety net in essence. In essence, the bank fulfils the role of "guarantor" for the promises made by the BNPL.