Saudi Arabia sets rules to regulate buy now, pay later sector

Saudi Arabia, the Arab world’s largest economy, has announced rules to regulate the buy now, pay later sector.

The rules include provisions related to licensing requirements, regulatory measures such as internal policies and procedures, information security standards and measures to combat financial crimes, the Saudi Central Bank said.

There are also requirements in place to protect consumers, define limits for activities and credit, as well as provisions regarding supervision and compliance, the banking regulator said.

The decision reflects the regulator’s “continuous efforts to develop the financial sector as a whole and empower the FinTech sector in particular”, it said. “The development of these rules will contribute to the growth and sustainability of the sector while safeguarding consumers’ rights.”

The buy now, pay later business model allows consumers to make online purchases instantly and spread their payments out over interest-free instalments.

The model’s market is projected to hit $565.8 billion in 2026, from an estimated $309.2 billion in 2023, expanding at a compound annual rate of 25.5 per cent, GlobalData figures show.

In the kingdom, the market is expected to reach $1.83 billion by 2028, up from an estimated $580 million this year, according to Mordor Intelligence.

Last month, Mubadala-backed buy now, pay later platform Tabby achieved unicorn status after it raised $200 million in a series D funding round, taking its total valuation to $1.5 billion.

The investment is expected to help Tabby, which was founded in Dubai, expand its operations in Saudi Arabia and the UAE, as it prepares for a planned initial public offering in the kingdom.

Last year, Riyadh-based payments platform Tamara raised $100 million in its second funding round to fund its expansion efforts.

However, with the rise of the buy now, pay later market, regulators are introducing tougher guidelines to protect people from taking on debts they cannot afford.

In 2022, the US Consumer Financial Protection Bureau said it planned to start regulating buy now, pay later companies amid concerns that their financing products were harming consumers.

The UK introduced draft legislation in February to regulate the business.

In Britain, businesses typically need authorisation from the Financial Conduct Authority to lend to consumers. But there’s an exemption for consumer credit-related activities if the credit provided is interest-free, re-paid in 12 or fewer instalments and settled within 12 months.