Buy Now, Pay Later (BNPL) is not just a flexible payment method; it is a form of credit. The structure of a BNPL allows customers to obtain goods or services immediately, while deferring payment over time. Once repayment is postponed beyond the purchase date, a credit obligation is created.
At its core, BNPL has the key features of a loan:
- Short-term consumer credit: The provider advances funds, directly or indirectly, to complete a purchase.
- Point-of-sale financing: The credit is tied to a specific transaction or merchant purchase.
- Installment repayment structure: The customer repays over a defined period, often between 30 and 90 days.
- Cost of credit may exist: Even when marketed as “0% interest,” revenue may come from merchant fees, late fees, or embedded charges.
For these reasons, the Central Bank of Nigeria (CBN) generally views BNPL not as a simple payment service, but as a lending activity. The provider is effectively assuming credit risk, managing repayment behavior, and engaging in consumer financing, all hallmarks of regulated lending.
This distinction is critical, as payment services move money that already exists. However, BNPL creates a financial obligation that did not previously exist, which places it squarely within the scope of credit regulation. As a result, the licence structure behind a BNPL product is not optional or cosmetic, it determines whether the business is operating legally, how it can raise capital, and how it is supervised by regulators.
Common Licence Routes Fintechs Use for BNPL
BNPL businesses in Nigeria typically succeed by plugging into existing regulated lending structures rather than trying to operate in a grey area. Here are the three most common licence pathways that actually work in practice.
- Microfinance Bank (MFB) Licence: Some BNPL fintechs choose to become a microfinance bank or partner with one because it places their lending activities squarely within Nigeria’s regulated banking system under the CBN. An MFB licence allows regulated consumer lending, participation in the formal banking framework and the ability to take deposits, issue loans, and provide other credit products. When BNPL operates under an MFB structure, the installment financing is treated as part of licensed banking operations, not as an unregulated credit scheme.
- Finance Company Licence: A Finance Company Licence, also issued by the CBN, is often a strong fit for BNPL providers that want to focus purely on credit without becoming a full bank. This licence allows a company to provide regulated lending services, offer credit products without operating as a deposit-taking bank and legally hold credit risk and maintain a loan book. Because finance companies are designed specifically for financing and lending activities, this structure aligns very neatly with the core mechanics of BNPL.
- Partnerships with Licensed Banks or MFBs: Some BNPL startups operate without holding a lending licence themselves by forming structured partnerships with licensed banks or microfinance banks. In this model, the licensed partner owns the loans on its balance sheet, while the fintech provides the technology platform, merchant network, credit scoring, and collections. Credit risk and regulatory responsibility remain with the licensed financial institution.
Why a Payment Licence Alone Is Not Enough for BNPL
BNPL as a Credit Product: BNPL gives consumers a way to defer payment on purchases in effect providing short-term credit at the point of sale. This functional connection to credit means regulators may treat BNPL like a loan product, not just a movement of funds. There’s currently no specific law just for BNPL in Nigeria, but regulators and legal analysts generally assess BNPL under the framework that applies to credit and consumer lending.
Payment Licences Cover Transfers Not Credit Creation: A CBN-issued Payment Service Provider (PSP) licence or Payment Solution Service Provider (PSSP) licence lets a company process payments, facilitate electronic transfers and provide payment gateways or switch transactions. But these licences do not authorize a company to extend credit, hold or service a loan book or assume repayment risk from customers. Payment licences enable you to move or process money, not advance it.
Lending and Financing Are Regulated Under Separate Rules: To engage in lending or consumer financing in Nigeria, entities generally must hold licences like: Microfinance Bank licence, Finance Company licence and Full commercial/merchant banking licence. These licences are governed by the Banks and Other Financial Institutions Act (BOFIA) and related CBN guidelines, which specifically cover entities that lend money or take deposits. Payment licences don’t meet these requirements because they are not designed to govern credit risk or borrower obligations, they govern payment infrastructure.
Risk of Operating Without a Proper Lending Licence: Because BNPL often functions as an extension of credit (even if interest-free), relying only on a PSP licence can result in: regulatory scrutiny or enforcement, forced restructuring of the business model or requirement to upgrade to a lending licence. Recent regulatory signals show this more clearly, the Federal Competition and Consumer Protection Commission (FCCPC) expanded oversight over digital lending, including non-traditional credit products, meaning platforms that advance value to consumers may be caught in the consumer lending regulatory net.
Conclusion
In conclusion, the question for BNPL providers in Nigeria is not whether the product involves payments, but whether the business model creates credit exposure. Where credit is created, licensing must follow.