With millions already using BNPL and industry giants scaling up compliance, providers now face the challenge of meeting regulatory demands without compromising customer experience.
As the UK’s Financial Conduct Authority (FCA) moves to regulate BNPL products by 2026, the industry highlights the challenge of balancing improved consumer safeguards with experience that has driven BNPL’s rapid growth.
Today (July 18), the FCA published its proposals in a consultation paper. Key measures include requiring lenders to check that borrowers can afford to repay BNPL loans and to offer support if they face financial difficulties. Borrowers will also be able to complain to the Financial Ombudsman Service.
“We have long called for BNPL products to be brought into our remit, so people can benefit from BNPL while being protected,” said Sarah Pritchard, Deputy Chief Executive, FCA.
“Our regulation will help consumers navigate their financial lives, with checks on whether they can afford to repay, support when things go wrong and access to the right information to make informed decisions.”
“We’re mainly relying on existing requirements, including the Consumer Duty, rather than proposing to make lots of new rules, supporting growth and allowing firms to innovate.”
A temporary permissions regime will open two months before the rules come into force on July 15, 2026, allowing providers to register and continue trading. Firms will then have six months to apply for full authorisation.
Lenders, consumer groups, the wider industry and other interested parties can provide feedback on the proposals until September 26, 2025.
Balance will be key
As Pritchard notes, regulation of BNPL has been a long time coming. The payment option first emerged around 2017 and saw rapid growth during the Covid-19 pandemic.
According to FCA research on unregulated BNPL, 20% of UK adults (10.9 million) use the payment vehicle at least once in the 12 months to May 2024, up from 17% (8.8 million) in 2022.
While BNPL is popular for its ease and flexibility, the sector has remained largely unregulated, leaving consumers with limited protections. However, the FCA has already secured changes to unfair contract terms and issued warnings over misleading advertising.
The government and regulators are now moving to close this gap, but Samuel Riordan, Executive Director of Banking and Payments at consultancy Capco, highlights the balancing act ahead.
“The new BNPL protections prioritise stronger affordability checks and complaint options for consumers if something goes wrong. The challenge will be ensuring this doesn’t erode the core experience that has driven BNPL’s popularity.
“Many BNPL firms will already have plans underway: developing more robust and exhaustive affordability checks, enhancing refunds and dispute management processes, and embedding new expertise for complaints submitted to the Financial Ombudsman.
“This is a big step towards enhancing consumer protections for a fast-growing product, that has attracted millions of consumers across the UK due to its seamless checkout experience and customer-centric flexibility.”
User experience isn’t the only concern stakeholders have around regulating the sector. Many are also worried about the impact new rules may have on small businesses and sole traders.
While recent government changes to the UK payments landscape aim to encourage growth, challenges remain. Janine Hirt, Chief Executive of Innovate Finance, pointed out in May that requiring domestic FCA licences for BNPL could discourage smaller providers.
“Under the Treasury’s rules, a plumber who goes to a family’s home to fix a burst pipe will need an FCA licence to provide BNPL as a payment option. Many of these traders are unlikely to go through this complex licensing process,” she said.
“It cannot be right that the family is unable to spread the cost through BNPL, and face the risk of interest if they are left with no choice but to use a credit card. We are pleased to see acknowledgement of this as an issue requiring further work and look forward to continuing to engage with the Treasury and FCA on this concern.”
This highlights the delicate task regulators face in enhancing consumer protections without undermining the very nature of what has made BNPL so popular. As Riordan puts it, firms must ensure that “customers’ choice and experience remains at the heart of these innovators’ business models.”
