A simplified guide to Buy Now Pay Later (BNPL), its pros and cons, and how establishments can obtain a permit for this service in Saudi Arabia.

Salla, the Future of E-Commerce

What is Buy Now Pay Later (BNPL)?

 Buy Now Pay Later (BNPL) is a short-term financing option that allows consumers to make purchases and pay for them over time, usually interest-free. You can learn how to start your e-commerce business.

How does Buy Now Pay Later (BNPL) work?

 Buy Now Pay Later (BNPL) has different terms and conditions, but it generally offers short-term loans with fixed payments where you can use a BNPL app to make your purchase, or you may have deferred payment options through your credit card.

With BNPL, you can make a purchase at a participating retailer and choose to buy now and pay later at checkout. If approved, you make a small down payment, such as 25% of the total purchase amount. You then pay off the remaining balance in a series of interest-free installments, usually over a few weeks or months.

Payments can be automatically deducted from your debit card, bank account, or credit card. You may also be able to pay by check or bank transfer in some cases, although the Consumer Financial Protection Bureau (CFPB) says most BNPL lenders give consumers no choice other than autopay.

The main difference between using BNPL and a credit card is that credit cards generally charge interest on any balance carried over to the next billing cycle. Although some credit cards offer 0% Annual Percentage Rates (APRs), they may only be for a limited time. With a credit card, you can carry a balance or use your line of credit indefinitely.

BNPL apps generally do not charge interest or fees, and they have a fixed repayment schedule. 

General Statistics on Buy Now Pay Later (BNPL):

• During economic times of high inflation and rising interest rates, BNPL can be a helpful option for people making lots of purchases.

• The number of BNPL loans originated in the US by the five surveyed lenders grew from 16.8 million to 180 million, according to a September 2022 report by the CFPB covering 2019 to 2021.

• BNPL is one of the most popular financing options for purchasing and pricing products in beauty and apparel, but it is also expanding into other areas like travel, pet care, groceries, and gas, with most BNPL loans ranging between $50 and $1,000.

• Several companies, such as Affirm and Klarna, offer purchase financing for items bought at participating retailers. One, a company majority-owned by Walmart, announced plans to offer BNPL financing in 2023. Some credit card issuers, like Chase and American Express, have also created similar financing arrangements.

• Although BNPL can help you make the purchases you desire, if you're not careful, it can put you in a position of having too much debt, which will affect your credit score.

The Impact of BNPL on Your Credit Score:

Most BNPL companies only require a soft credit check for approval, which does not affect your credit score. However, others may perform a hard pull on your credit report, which can temporarily knock a few points off your score.

Some BNPL loans are reported to one or more of the three major credit bureaus and can appear on your credit reports, having an impact on your credit score.

Note:

If a BNPL loan is not reported to the credit bureau, it will not help you build a good credit history like a credit card would.

It is important to ensure you can afford the monthly installments after your BNPL loan is approved. If you miss your monthly payment for a BNPL loan, your credit history will be impacted, which will naturally affect other outcomes in a negative way. 

Pros and Cons of BNPL:

BNPL financing agreements allow consumers to pay for items over time without interest fees. It is possible to get approved for this type of financing even if other loan options are closed off due to a low credit score or a lack of credit history.

BNPL loans do not add to your credit card debt, but they do add to your personal loan debt, meaning they won't affect your credit score unless you fail to pay.

On the other hand:

Repaying a BNPL loan won't help you build good credit, and you may also miss out on perks that credit cards can offer, like cash back or rewards points.

It can also be a hassle if you want to return an item purchased through BNPL. There can also be a delay before the merchant notifies the BNPL lender of the refund, meaning you might have to keep making payments in the meantime. If you don't pay them, the late or missed payment could be flagged, resulting in additional fees and a potential ding to your credit score.

In short:

Pros of BNPL:

• A convenient way to pay for purchases over time.

• Often no interest or lower interest rates than credit cards.

• Good credit/a high credit score is not necessary to qualify.

• Fast approval.

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Cons of BNPL:

• Difficulty tracking payments.

• Missed or late payments result in late fees and can damage credit scores.

• No rewards or cashback on purchases.

• Payments may continue even if the product is returned.

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Licensing BNPL Service Providers by the Central Bank in Saudi Arabia

All establishments wishing to carry out Buy Now Pay Later (BNPL) activity in the Kingdom must obtain a permit from the Central Bank before practicing the activity. This is based on the provisions of Article (Four) of the Saudi Central Bank Law issued by Royal Decree No. (M/36) dated 11/04/1442 AH, and Article (Ten) of the Finance Companies Control Law issued by Royal Decree No. (M/51) dated 13/08/1433 AH.

The Central Bank stressed the necessity of obtaining the permit before practicing the BNPL activity, and that existing establishments must correct their status and apply to the Central Bank to obtain the permit to continue practicing the activity, or cease practicing it before the end of the specified period to avoid legal penalties.

You can request the permit from here.

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Examples of BNPL Methods in Salla:

Salla helps stores offer BNPL through several authorized services such as:

1. Tabby:

Stand out from other stores and join some of the largest retailers in the region, like 6th Street, Golden Scent, and Abdul Samad Al Qurashi, by providing a flexible and easy payment method for your customers with Tabby. Adding Tabby as a payment option on your store will boost opportunities to increase sales, as the service motivates your customers to buy from your store without worrying about the purchase amount!

Steps to enable integration with Tabby:
Visit the Help Center here.

2. Tamara:

Tamara is a BNPL service with no fees for customers. You can order the product you need and pay 30 days after shipping.

Steps to enable integration with Tamara:
Visit the Help Center here.

3. Spotii:

Spotii is a payment solution equipped with technology that enables shoppers to shop now and pay later with absolutely no interest and no transaction fees over four equal installments. Offering the "Shop Now, Pay Later" option is proven to increase average basket size by 50-70%, boost conversion rates by 20-40%, reduce refunds by up to 30%, minimize the need for discounting, and enhance loyalty and customer engagement.
Steps to enable integration with Spotii:
Visit the Help Center here.