BNPL From A Legal Perspective: One “Pay Later” Button, Many Structures Behind It

In recent years, Buy Now, Pay Later (BNPL) has become a familiar part of the digital shopping experience. Customers can select the pay-later option at checkout, complete the registration process within a short period, and pay for the transaction at a later time or in installments.

The simplicity of this experience may give the impression that BNPL is also a simple product. In reality, behind a “Pay Later” button may lie a complex structure combining credit granting, payment services, technology, data, and product distribution through digital platforms.

CDLAF is publishing a series of articles on BNPL to provide a systematic framework for credit institutions, e-commerce platforms, technology companies, and other parties researching or implementing buy now, pay later products. The series does not begin with the question of whether a particular BNPL model is “permitted” or “prohibited”. Before that question can be answered, it is necessary to accurately identify what product is being offered, what roles each party performs, and how the transaction actually operates.

This first article therefore starts with the fundamentals: positioning BNPL within the relationship between credit products, embedded finance, and Banking-as-a-Service.

1. The Same Experience, Different Legal Structures

Two BNPL products may offer customers an almost identical experience while being built on entirely different legal structures

Behind a “buy now, pay later” option may be a credit institution providing credit through a credit card, including a non-physical card; a credit institution providing a loan or granting a credit limit to finance one or more specific purchases; a seller allowing customers to defer payment using its own resources; a platform that merely introduces and distributes products provided by a licensed institution; or a third party providing a technology system that connects the platform with the credit institution

From the customer’s perspective, all of these structures may be referred to as BNPL. From a legal perspective, however, the commercial name does not determine the legal nature of the transaction.

2. BNPL Is First and Foremost a Commercial Experience

BNPL describes an outcome from the customer’s perspective: goods or services are received first, while the payment obligation is fulfilled at a later time or divided into multiple installments.

BNPL is therefore not necessarily the name of a single legal product, nor does it automatically correspond to a separate type of license. To determine the applicable legal requirements, it is necessary to look beyond the interface and commercial name to identify the underlying credit product.

The underlying credit product—the credit product that forms the basis of the BNPL functionality—may be structured as credit provided through a credit card, a loan granted on a case-by-case basis, or a credit line used to finance a specific purchase transaction.

Differences in legal structure also have a direct impact on customers. Although products may all be marketed as “buy now, pay later”, they may be subject to different credit terms, interest rates, fees, payment schedules, and consequences of late payment. Before using the product, customers should carefully review the product policy, terms and conditions, credit agreement, and information disclosed on the interface to clearly identify the credit provider, the form of credit, the total amount payable, the payment schedule, and their respective rights and obligations.

3. Embedded Finance: Bringing Credit to the Point Where the Need Arises

Embedded finance is not a separate financial product. It is a mechanism through which a financial product, such as credit, is integrated into a customer journey whose primary purpose is not the use of financial services.

Under a traditional model, customers may have to proactively approach a bank, apply for a credit card or loan, and then use the credit card or loan to make a purchase. Under an embedded finance model, the financing option is presented directly within the commercial journey in which the customer is already engaged.

From this perspective, embedded finance is primarily a distribution mechanism. BNPL is a typical example of embedded lending: a credit product is made available directly at the point of sale, on an e-commerce platform, or within an application that the customer is already using.

This distribution model may benefit multiple parties:

• Customers gain more convenient access to credit;
• Sellers may improve transaction completion rates and order values;
• Platforms can increase user engagement;
• Credit providers can reach customers in a context where specific transaction data is available.

However, the convenience of the interface does not change the regulated nature of credit activities. The fact that a product is “embedded” within a platform does not eliminate obligations relating to customer identification, credit assessment, contract formation, information transparency, data protection, and consumer protection.

4. Embedded Finance: Bringing Credit to the Point Where the Need Arises

Banking-as-a-Service (BaaS) describes a collaborative model in which non-bank businesses use products, infrastructure, or capabilities provided by banks or other licensed institutions to deliver financial and banking services to customers.

While embedded finance looks at the model from the perspective of the customer journey and distribution channel, BaaS primarily looks at the supply side and the operational arrangements behind the customer-facing service.

Three questions can be used to distinguish the different layers of a model:

• What? What is the actual financial product: a credit card, a loan granted on a case-by-case basis, a credit line, or another product?
• How? How is the banking capability integrated under the BaaS model: directly with the licensed institution or through an intermediary infrastructure provider?
• Where and when? Where and at what point in the customer’s purchasing journey does the customer access the product?

5. One Interface, Multiple Layers of Functionality

At a general level, a BNPL model typically involves at least three functional layers.

The interface and distribution layer manages customer touchpoints, the customer journey, and the customer experience. The platform may participate in marketing, product promotion, information collection, and customer support.

The technology and operations layer connects systems, transmits and receives data, manages processes, supports reconciliation, or operates the program. This layer is often provided by a technology enabler or middleware—the technological layer connecting the parties.

The licensing and funding layer performs regulated activities within its scope, such as extending credit, issuing cards, or providing payment services. In many models, this layer also provides the funding, records the receivables, and bears the credit risk.

These three functional layers do not necessarily correspond to three separate legal entities. Each layer may involve multiple parties, such as providers of infrastructure, platforms, and software; entities providing data processing or credit scoring services; providers of electronic contracts and electronic signatures; payment intermediary service providers; as well as national systems, databases, or infrastructure managed by state authorities.

Accordingly, a business diagram showing only a platform connected to a credit institution may not fully reflect the entities, relationships, and responsibilities that make up the legal architecture of the product.

6. Legal Liability Is Not Determined by the Interface

In embedded finance models, customers often access products through the platform’s brand. However, legal liability cannot be determined solely by the brand displayed on the screen or by the labels that the parties assign to themselves in their contracts.

The actual functions performed by each party should be examined:

• Who designs the product and determines the credit terms?
• Who decides whether to extend credit?
• Who provides the funding and bears the credit risk?
• Who enters into the credit relationship with the customer?
• Who issues and manages the payment instrument?
• Who is responsible for disbursing funds, collecting payments, and handling overdue debts?
• Who collects, controls, and processes customer data?
• Who receives and handles customer complaints?
• Who is responsible when the system or a partner encounters a problem?

As a general principle, outsourcing technology or using a distribution platform does not automatically transfer the legal responsibilities of the party conducting a regulated activity. At the same time, a platform or technology provider cannot automatically be considered outside the scope of responsibility if it directly performs functions that have legal significance or affect customers’ rights and interests.

The contractual structure should therefore accurately reflect the actual operational structure, cash flows, data flows, decision-making authority, and allocation of risks, rather than merely allocating responsibilities on paper.

7. Start with the Right Questions

When assessing a BNPL model, the first question often asked is: “Is BNPL permitted in Vietnam?”

This is an understandable question, but it is not sufficient to reach a meaningful legal conclusion. A more appropriate question is:

What product does this model offer, through which entities, on the basis of what licenses, and what functions does each entity actually perform?

Starting from this central question, a business can then identify, step by step, its business model, underlying credit product, relationships among the parties, cash flows, data flows, customer journey, and allocation of responsibilities.

A seemingly minor change—such as changing the funding entity, moving from a loan granted on a case-by-case basis to a credit line, disbursing funds to the seller rather than the borrower, or allowing the platform to become more deeply involved in the credit assessment process—may result in an entirely different legal architecture and set of obligations.

This is also how CDLAF’s BNPL Series will approach the topic: rather than seeking a single model that can be applied to every business, the Series will examine each layer of the transaction to clarify the relationship between business objectives, product structure, licenses, contracts, technology, cash flows, data, and legal responsibilities.

For BNPL, effective legal design does not begin with naming the model. It begins with understanding how the model actually operates.

About the Author & Ecosystem: The article is legally supported by CDLAF and by the expertise of CFT Solutions – a company specializing in Finance – Tax – Accounting. We provide comprehensive management solutions that help enterprises control risks and optimize resources.

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