The FCA started to regulate BNPL on 15 July 2026, welcoming a wave of changes that affect lenders, consumers and merchants.
Most of the time, payment habits change in response to external factors, such as people using contactless cards instead of cash because they fear that passing cash around helps spread viruses.
If there are two or more factors driving the change, the impact is even more pronounced, as seen with buy now, pay later (BNPL).
BNPL, where people can defer the cost of a purchase, has been available in the UK since around 2014, but providers like Klarna and Clearpay transitioned to the better-known instalment payments around 2016.
In 2017, the Financial Conduct Authority (FCA) recorded total UK BNPL market transaction volume at £60m, rising to £1.23bn in 2019 and £2.7bn in 2020.
The surge has been attricbited to lockdowns and changes in online shopping during the pandemic, with an influx of providers and cost-of-living pressures also playing a part in the growth.
The service has been largely unregulated during its rise, meaning consumers lacked many of the protections found with traditional credit.
However, this changed on 15 July 2026, when new regulations bringing BNPL under the supervision of the FCA came into force.
What is changing under the new BNPL regulations?
The UK’s BNPL regulations bring the sector more in line with traditional credit services, and one way they do this is through introducing affordability checks.
In the past, people could use the payment method without proving that they could keep up with the payments. However, before approving the agreement, lenders are now required to carry out assessments to find out whether customers can afford the repayments.
Sarah Pritchard, Deputy CEO at the FCA, said at the time: “We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many. But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation.”
Interestingly, before the regulations came into force, Klarna reported that over 99% of its loans were repaid, with 95% of UK BNPL purchases paid either early or on time.
A second change is that lenders must provide clearer information before customers enter into an agreement, such as the amount being borrowed, repayment dates, instalment amounts and any potential late payment charges.
Customers must also be made aware of the consequences of missing payments, which the FCA believes will help them make more informed decisions before committing to a purchase.
A third change is around 75 Consumer Credit Act protections on qualifying purchases over £100 up to £30,000, which makes the BNPL provider jointly liable with the retailer if goods are faulty or not delivered.
Another is that BNPL providers must comply with the FCA’s Consumer Duty, which requires firms to act to deliver good outcomes for retail customers.
This includes providing appropriate support to customers experiencing financial difficulties, including signposting them to free debt advice where appropriate. Consumers can also escalate unresolved complaints to the Financial Ombudsman Service.
Notably, the UK’s BNPL regulations apply to deferred payment credit and not every product marketed as BNPL.
Under the new rules, third-party lenders providing interest-free credit that is repayable in 12 or fewer instalments over 12 months or less must comply with FCA requirements. This covers providers such as Klarna, PayPal and Clearpay when offering qualifying products through retailers.
How will BNPL regulation affect consumers and lenders?
Consumers may notice slightly more friction when using BNPL to make a purchase, which may have been one reason the payment method surged compared with taking out a regular loan or using a credit card.
However, the process taking more time or perhaps feeling slightly more significant is a reminder that they are now more protected.
Lenders will be held to a higher standard, which will in turn introduce more regulatory responsibilities and higher operating costs.
Providers must obtain FCA authorisation or hold temporary permission to continue offering qualifying BNPL products, ensuring their systems, processes and customer support meet the regulator’s requirements.
In a bid to keep friction at the lowest possible level, providers might rely on technology, including automation, predictive analytics and AI. Speaking to Payment Expert earlier this year, Kristaps Zips, UK CEO at payabl., said that these tools could help lenders analyse transaction data and make more informed decisions.
“Innovations in predictive analytics and AI can enable real-time analysis of transaction data to support smarter decisions and approvals, without leading to increased defaults or extra friction at checkout,” he said.
What do merchants need to know about BNPL compliance?
Lenders and consumers are the obvious parties affected by the regulatory changes, however, merchants have also played a huge role in BNPL’s surge and will also be crucial to ensuring the industry thrives going forward.
Stepping into the shoes of a merchant, you must first verify that BNPL providers are FCA-authorised or operating under a temporary permissions regime. Partnering with unregulated providers would breach rules and risk losing access to payment service providers.
The next step is to ensure the checkout journey and marketing materials follow the UK regulator’s guidance. This is because, although lenders are primarily responsible, merchants need to ensure on-site promotions and buttons use transparent wording and don’t mislead shoppers.
Section 75 protections are the next change merchants must familiarise themselves with, understanding that BNPL purchases over £100 now grant shoppers joint-liability rights, meaning customers can hold both the merchant and the lender accountable for faulty or undelivered goods.
Finally, affordability checks may lead to more abandoned carts and friction. So, monitoring conversion rates and helping customers understand why may improve profitability.
