A money service business (MSB) is regulated for activities such as funds transfers, issuing money orders, and more. It may also offer buy now, pay later plans.
If you're wondering can MSBs offer charged cards or buy now, pay later services, see below for complete details.
Can MSBs Offer Charged Cards Or Buy Now Pay Later Services?
MSBs can offer charged cards and buy now pay later services in Canada. However, they are subjected to various rules and regulations when offering such services.
For example, the money service business must register with the Bank of Canada. They should also follow the bank’s rules about funds safeguarding requirements when offering charged cards.
How Do Buy Now, Pay Later Business Model By MSBs Work?
A buy now, pay later business model by an MSB is an agreement in which your business agrees to finance a client’s purchase.
To use such services, clients have to sign a contract with the MSB. The contract document must include all the following details:
- Amount of the product the client wants to purchase
- Individual amount of each payment
- Frequency of payments
- Number of payments
- Interest rate
- MSB fees
- Buy now, pay later business model for payments
If the client is content with all these details, they may sign the contract with your MSB. As a money service business, you must follow all regulations when offering buy now, pay later services.
Buy Now Pay Later Services Plans By MSBs
MSBs in Canada can offer two types of buy now, pay later plans to provide consumers flexibility. These include:
- An equal payment plan is an installment pay plan in which a customer has to pay equal minimum amounts at specific frequency until the total balance is paid.
- A deferred payment plan is one in which you can set a due date by which the client has to pay the total balance in full.
At the end of the day, it’s up to you whether you want to offer your clients an equal payment plan or a deferred payment plan.Â
Typically, the former option offers MSB owners more control over payment management.
Payment Models MSBs Offer Under Buy Now Pay Later Services
About 34% of people in Canada are familiar with buy now pay later services. This is why you may be thinking of developing such a business model for your MSB.
If so, you must know the types of payment models you can include under your buy now pay later plans:
- Pre-Authorized Debits (PAD)
The PAD option is one in which a client will have to provide you with their banking information. You can then automatically charge regular debit payments from their account.
The first payment can be charged on the purchase date. After that, you can cut the amount from the client's accounts regularly on the agreed payment dates.
Let's imagine your client is buying a product for $6,000 on 1st March 2025 and has opted for three equal payments at a monthly frequency. This means you will be charging them in the following manner:
- First payment of $2,000 on 1st March
- Second payment of $2,000 on 1st April
- Final payment of $2,000 on 1st May
If your customer misses any payment, you can charge them additional fees as a penalty.
- Pre-Authorized Credit Card Payments
This payment model is similar to PAD but applies only to credit cards. Your client must give you their credit card details and agree to let you charge regular payments.
As an MSB, you can also charge a processing fee with each credit card payment. This amount will be added to the total product purchase amount.
The first payment is deducted on the purchase day and the rest will follow according to the set frequency. It is a client's responsibility to pay their credit card on time to avoid missed payments.
One thing you must ensure when offering credit card buy now pay later services is that the card provider allows such payments. If the client’s card provider does not regulate buy now pay later payments, they can block the transaction.
- Charged Cards
MSBs can also offer charged cards with buy now pay later compatibility to clients. To offer such an option, your business must collaborate with a financial institution such as a bank.
The bank will offer you the charged card with buy now pay later compatibility for specific retail providers. You can offer that card to your client.
Keep in mind your client will only be able to use the card at specific retailers for buy now pay later services. You can also charge a promotional interest rate on such cards for missed payments.
Typically, MSBs can charge interest in two ways:
- Interest on the full amount of the purchased product
- Interest on only the unpaid balance
You can set the interest rate from 0% to 35%, depending on your business factors.
Can MSBs Offer Charged Cards Or Buy Now Pay Later Services: Call Renno & Co. Fintech To Learn More
A money service business must follow regulations set by FINTRAC and the Bank of Canada when offering buy now pay later services. This is why meeting with legal counsel such as the Fintech team at Renno & Co. is so important.Â
We will help you with setting up a buy now, pay later business model and register your services with the relevant organizations. So contact us today to start your process of offering buy now pay later services in Canada.
