The FCA has long been calling for BNPL to be regulated-and finally there is light at the tunnel. According to the FCA, BNPL lending has grown in the UK from £60m in 2017 to more than £13bn in 2024.
FCA research on unregulated BNPL found 1-in-5 (20%) UK adults (10.9 million) had used it at least once in the 12 months to May 2024, up from 17% (8.8 million) in 2022.
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Despite not yet having regulatory oversight of BNPL firms, the FCA has already secured changes to unfair contract terms and warned firms about misleading advertising.
BNPL regulation-industry reaction
A Clearpay spokesperson commented:
“With the FCA publishing its proposed rules to regulate Buy Now, Pay Later (BNPL), the 12-month countdown is now on. We will support the FCA as it consults on and finalises its specific rules for the sector. Coming into force on 15 July 2026, regulation will establish a consistent operating environment and clear compliance standards for all providers.
Clearpay has always called for fit-for-purpose regulation that ensures consumer protection, provides much-needed innovation in consumer credit and supports the UK’s thriving FinTech sector.
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By GlobalData“Clearpay research highlighted that nearly half of UK adults (48%) are more likely to use BNPL once regulation is passed, and with 71% believing that it is important for BNPL to be subject to UK financial legislation, today’s announcement will help foster trust among consumers. It will also create a more sustainable foundation for the future of BNPL as it continues to grow as an everyday payment option for consumers.”
Hyder Jumabhoy, Partner at international law firm White & Case LLP and Global Co-head of its Financial Institutions Industry Group
The FCA’s tightening of regulations around the BNPL sector in the UK will subject lenders to more robust consumer protection and tougher credit check requirements. Alongside the rise in interest rates pushing up the cost of capital to providers, compliance with these changes is likely to increase operating costs and squeeze margins further for many BNPL providers. This will create pressure on BNPL firms to scale-up their compliance functions, but it could also drive a wave of consolidation in the market, especially among smaller providers. Challenger banks could be particularly active in this space, seeking to enhance their consumer lending propositions by acquiring BNPL platforms with established merchant networks and user bases.
Sarah Pritchard, deputy chief executive, FCA
We have long called for BNPL products to be brought into our remit, so people can benefit from BNPL while being protected. 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.
Samuel Riordan, Executive Director of banking & payments, Capco
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. The balance will need to be struck between strengthening the regulators controls over a new part of the market and ensuring customers’ choice and experience remains at the heart of these innovators business models.
Richard Pinch, Senior Director of Risk, Broadstone.
As the FCA moves to tighten regulations around the Buy Now Pay Later (BNPL) sector, providers will be under increasing pressure to enhance creditworthiness and affordability assessments and also demonstrate robust consumer protections. This marks a significant shift away from the relatively light-touch model BNPL firms have operated under, and places greater emphasis on affordability checks, credit reporting and fair treatment of borrowers.
In addition, the extension of Section 75 protections for consumers will mean firms will be jointly responsible with retailers for faulty or undelivered goods placing even more responsibility on risk and compliance teams to oversee merchant partners. All this in combination will pose a challenge to BNPL lenders, particularly those at the smaller end of the market, as those firms will need stronger data capabilities, credit risk assessment and monitoring tools to meet the FCA’s expectations. It is likely that these pressures could trigger consolidation within the market as smaller players are absorbed by those with greater capacity and finances to meet these new demands.
