UK BNPL regulations come into effect: Industry reaction

Deferred payment credit (DPC), often known as Buy-now-pay-later (BNPL) is finally subject to FCA regulation. According to the FCA, it wants its regulatory regime to reduce the risks of harm to consumers. The FCA describes its regulations as proportionate, so as to enable the BNPL sector to continue to innovate and grow sustainably. In addition, it says it wants to ensure that consumers can still access deferred payment credit where appropriate.

Aims of the FCA BNPL regulations

Specifically, the FCA says that outfits offering BNPL must operate to high standards and deliver good outcomes for consumers. As part of that, its proposed approach to regulation seeks to ensure that DPC lenders:  

• Give information to consumers that helps them make effective, timely and informed decisions about their DPC borrowing, both before they enter into an agreement and throughout its duration.
  
• Lend responsibly and affordably.
  
• Support customers who are facing financial difficulty.  
  

The FCA also wants better, more timely information about the DPC market and customer outcomes so that it can supervise firms effectively. The FCA will require fully authorised firms to provide it with product sales data about their DPC lending.

BNPL deadline day: New consumer safeguards

Under the new regulations, UK BNPL users will benefit from a range of new safeguards, including Section 75 purchase protection on eligible purchases over £100, and access to the Financial Ombudsman Service.

BNPL: PayPlan charts BNPL UK growth

According to one of the UK’s largest debt advice providers, PayPlan, BNPL usage among its customers across the UK has increased by 3,793% between 2020 and 2025.Its figures highlight the growing role that BNPL is playing in household finances. PayPlan reports that millennials represent the largest share of BNPL users among customers, accounting for 54% of all disclosed BNPL usage, compared with 28% for Generation X and 12% for Generation Z. Separate data from Experian confirms that 25-34 year-olds remain the largest user group but its numbers show that adoption continues to expand across all age ranges, with particularly strong growth among older demographics. Experian reports that customer volumes among those aged 65-74 have increased 46% year-on-year, while usage among consumers aged 75 and over has grown 53%. 

PayPlan data shows that men account for a slightly higher proportion of BNPL accounts than women, at 51% compared with 41%. 

The data from PayPlan also shows BNPL has become increasingly embedded in everyday spending habits. Nearly two-thirds (62%) of BNPL users surveyed said they had used the products to fund higher-value purchases such as washing machines, laptops and televisions. The average number of BNPL accounts held by users rose from 1.25 in 2020 to 1.91 in 2025. In 2025, 66% of consumers had 1 BNPL account, 20% had two accounts, 5% had three accounts, 3% had four accounts and 6 % had five accounts or more. 

Meantime, research from Compare the Market, estimates that almost half (48%) of UK adults now use BNPL products. It estimates that one-in-ten people use BNPL at least once a month to cover essential spending such as groceries and household bills, rising to 17% of 18 to 34-year-olds.

Experian highlights 98.5% of BNPL spending repaid on time

Data released by Experian estimates that more than 100 million UK BNPL transactions were carried out in 2025, worth more than £7bn. This is a significant number but it remains a tiny fraction of more traditional credit products, such as credit cards, with annual spend of around £265bn. According to Experian, the stigma often associated with BNPL of consumers using BNPL with a lack of financial discipline, is wide of the mark. Specifically, it reports that 98.5% of BNPL spending was repaid on time. Experian reports that average transaction values remain modest at around £60.

Growth not reflected in BNPL sector profitability

Despite the growth in the use of BNPL, the sector remains notoriously loss-making. Market leaders, Klarna, went public on 10 September 2025. Globally, Klarna, founded 21 years ago, now reports 118 million active users. Klarna is now engaged in ambitious expansion plans to pivot away from reliance on its BNPL offering, ramping up its banking and consumer lending services. The Klarna share price, currently just below $20, has halved since its IPO price of $40, but has recovered notably from a 52-week low share price of $12.06.

In February 2022, Block completed the acquisition of BNPL outfit, Afterpay. It remains one of the worst payments sector acquisitions of recent years in terms of share price value destruction. The deal was originally announced on 1 August 2021. The transaction had an implied value of approximately $29bn based on the closing price of Square common stock on July 30, 2021. In the period since that announcement, the Block share price has fallen by around 67%.

UK consumers: Awareness gap or clued up on BNPL?

According to PayPlan, there is a significant awareness gap when it comes to the new regulations. Around 85% of consumers interviewed by PayPlan said they were unaware of the upcoming regulatory changes, but 100% supported the introduction of regulation once informed about it. BNPL critics have long argued that too many consumers have not, to date, realise that BNPL should be classed as credit and are not aware of certain consequences such as late payment fees when taking out these agreements.

Separate data released by Compare the Market confirms a yawning awareness gap, but not quite to the extent flagged up by PayPlan. Compare the Market reports that some 59% of BNPL users are unaware of the new regulations coming into force. It says that awareness is particularly low among older consumers, with 73% of over-55s saying they haven’t heard about the changes.

On the other hand, Klarna argues that the majority (87%) of UK consumers say new Buy Now, Pay Later (BNPL) regulations will increase or maintain their trust in the category. Klarna research finds that consumers already recognise the potential benefits of regulation: 40% believe it will improve consumer protection and a third (33%) say it will make BNPL feel more secure to use. More broadly, Klarna argues that its survey finds that over two thirds (68%) of people in the UK believe upcoming BNPL regulation will have a positive effect on BNPL use or the wider economy.

Will the BNPL regulations work?

Stiven Muccioli, CEO at fintech architecture provider BKN301, believes that while BNPL regulation is a proof point of the industry’s maturity, implementing it across outdated and fragmented legacy systems could expose challenges.

He warns that many financial institutions still lack the infrastructure needed to connect customer data, credit decisioning, and compliance controls across retailers’ websites and wallets.

Meantime, Neil Kadagathur, founder and CEO of Creditspring, has been one of the most eloquent commentators, highlighting the need for regulation. He built Creditspring as a direct response to the high-cost credit products that caused so much harm in the 2010s – focusing on fixed fee, no interest lending that stops debt spiralling. He’s been making the argument for safer, more transparent credit for nearly a decade. His view on the incoming regulation is that it’s a step in the right direction but leaves some meaningful gaps, particularly around what “proportionate” affordability checks will actually mean in practice, and the fact that merchant-provided credit stays outside the rules entirely.

Will greater regulation impact innovation?

There is an argument, albeit not a convincing one, that greater regulation may impact short term credit product innovation. The current regulatory climate has not prevented Float, for example, from ramping up its expansion plans. Float is an international player in the credit card space that enables merchants to offer their consumers split credit card payments. Users have the facility of flexible payments and interest and fee-free monthly instalments using the credit they already have on their existing card. In other words, Float’s proposition is not strictly speaking BNPL, as it enables consumers to spread-out purchases on their existing credit card so that there is no new borrowing and no changes to users’ existing credit history.

BNPL regulations: Unintended consequences?

Santosh “San” Nakra-Shah is the co-founder and Managing Director of ChilliMint, a specialist consultancy and marketing agency, is just one of many industry experts to highlight potential unintended consequences of the regulations. In the early days of BNPL, it tended to be used for impulse, discretionary purchases. BNPL has transitioned towards everyday essentials for many users, such as regular bills and groceries. For example, Nakra-Shah, quotes research from Fair4All Finance that the new affordability checks could shut out 10-30% of current users. If this proves an accurate forecast, what happens to that demand once it’s turned away, and will it find a safer home or a less visible one?

According to Compare the Market, only 31% of UK adults feel confident applying for traditional credit products, while 14% actively avoid applying because they fear being rejected.  It warns that this anxiety may become more noticeable as affordability checks become a routine part of the Buy Now Pay Later checkout process.

Industry reaction to BNPL regulation day

Konstantinos Adamos, Of Counsel, Winston Taylor

Buy Now Pay Later’s move into the FCA perimeter is the most significant recalibration of the UK consumer credit regime in a decade. A product that grew to a multi-billion-pound industry in just over seven years is now subject to the Consumer Duty, creditworthiness rules, and oversight by the Financial Ombudsman Service. Deferred credit remains key in how consumers can afford unexpected or discretionary purchases. The new regime balances that position with robust rules to ensure consumer protection.

Rachel Duffey, CEO, PayPlan

We welcome the regulation of Buy Now Pay Later products and the additional protections it will provide for consumers. However, BNPL has become an important financial tool for many households navigating ongoing cost-of-living pressures. People are increasingly using these products not just for discretionary spending, but to manage larger household purchases and, in some cases, everyday expenses. 

As the new rules come into force, it is vital that regulators, lenders and the debt advice sector work together to ensure consumers continue to have access to safe, affordable credit. We encourage consumers to familiarise themselves with the upcoming changes and seek free debt advice if they are struggling to manage repayments across multiple credit products.

Alex Forsyth-Thompson, CEO and Founder, Float

This is a good moment for the UK instalment sector – and for shoppers, more than anything else. Regulation like this raises the bar for everyone building in the space, and providers having clarity around the appropriate standards and guardrails is ultimately what delivers better outcomes for shoppers including clearer disclosure, real affordability checks, limiting escalating fee harm and recourse if something goes wrong. We see this as a good thing for anyone providing or using instalment payments in the UK.

We’ve arrived into that environment with a model that works differently. Float’s technology enables merchants to offer instalment plans, with no added fees or interest, that are created within the limits and protections of a credit facility that a bank has already assessed and approved, rather than issuing additional credit exposure. By operating within the bounds of the existing, regulated credit card space, Float’s structural product innovations achieve a lot of these better outcomes by design. We’re excited that we get to build in the UK at exactly the moment this market is being asked to raise its standards, and a model built around using credit people already have, rather than creating more of it, is a genuinely good fit for where things are heading.

Theresa Lindsay, Chief Marketing Officer, Novuna Consumer Finance

Buy Now Pay Later can be a valuable way for consumers to spread the cost of larger, planned purchases, however some unregulated products have become so seamless that borrowing can feel almost invisible for smaller everyday purchases.

These reforms are a positive step towards ensuring credit is used responsibly. By introducing greater transparency and affordability assessments, they will help consumers better understand the commitments they’re taking on and make informed borrowing decisions. This is important for everyday spending, where the ease of accessing credit can sometimes encourage purchases that may not fit within a customer’s budget. The changes should help create a more consistent and responsible lending environment, while preserving the established benefits for retailers and customers that Buy Now Pay Later can offer for big-ticket items.

The reforms come amid rapid growth in checkout credit. FCA figures show the BNPL market reached more than £13bn in 2024, while 10.9 million adults used BNPL in the 12 months to May 2024.

For regulated providers such as Novuna Consumer Finance, an established BNPL provider to major high street and online retailers, the reforms are a welcome step towards raising standards across the market. Novuna already operates under FCA rules, with affordability assessments central to its responsible lending approach.

Zoe Morton, consulting director, RSM UK

Regulating buy now pay later credit firms gives more protection to consumers in line with the Consumer Duty rules, as it adds more opportunities to ensure customer understanding and affordability checks prior to purchase. For credit providers however, this is likely to impact their revenues – at least in the short term – as greater friction at the checkout means fewer transactions will be completed.

These new rules also bring many firms under the Senior Management Regime for the first time, meaning directors, CEOs and compliance heads can now be held personally accountable if things go wrong. This brings enormous new responsibilities, as any breach of the rules can potentially carry unlimited fines, and even a lengthy prison sentence. It’s therefore imperative that firms have the right control frameworks in place to ensure they’re fully compliant.

Firms entering the FCA-regulated payments market should not assume existing AI tools remain fit for purpose. Governance, oversight and customer outcomes should all be reassessed through a regulatory lens.

Stiven Muccioli, CEO, BKN301

BNPL’s regulation in the UK is proof of fintech moving from the margins to the mainstream. Once challengers operating outside the orbit of the big incumbent banks, BNPL providers like Klarna, PayPal, and Afterpay are household names at the forefront of consumer finance. But naturally, scale must be matched by stronger transparency and consumer protection.

Graduating from its teenage years, BNPL is now entering adulthood. In this era, consumers will still expect fast and flexible credit, embedded seamlessly into the apps they already use.

Now, providers will need to capture better customer data, run more robust checks, deliver consistent disclosures, and maintain clear records across every channel through which BNPL is offered. All of this must happen accurately and in real-time, without adding friction to the customer journey.

Here is where an infrastructure challenge is exposed. BNPL is distributed across retailers’ apps and websites, digital wallets and payment platforms, yet many financial institutions still rely on legacy systems that were simply not designed to connect data, decisioning, and compliance across multiple touchpoints. When those functions sit in silos, providers risk creating fragmented processes and disjointed customer experiences.

This is where composable infrastructure can give banks and fintechs the extra agility they need as regulation evolves. By integrating modular capabilities across payments, wallets, onboarding, and compliance, banks and fintechs can introduce new controls without replacing their entire technology stack. That flexibility behind the scenes that keeps the ‘front of house’ customer experience fast and frictionless.

BNPL’s next chapter will therefore be decided not just by what happens at the checkout, but by the infrastructure working behind the till. Regulation may be the catalyst for change, but infrastructure will decide who keeps up.

Santosh “San” Nakra-Shah, co-founder, Managing Partner, ChilliMint Europe Limited

From 15 July, Buy Now Pay Later finally has to play by the same rules as the rest of the credit industry, and having watched this market grow up from the sidelines for years, I’d say it’s overdue. The affordability checks introduced in the new FCA rules go a long way to making repayment terms clearer, and afford stronger protections for the UK’s estimated 11 million BNPL users.
BNPL was built for the want-not-need purchases – the trainers, the gadget, the £80 dress you talk yourself into. The issue is it’s now supporting far more routine spending, like groceries, school uniforms and energy bills. UK households are facing steep rises in the cost of living and estimates suggest around 1.6 million people have used credit, including BNPL, to help cover everyday bills.”

BNPL is frictionless and available exactly when people need it, offering quick access to credit at the point of purchase for consumers who may not qualify for, or choose not to use, more traditional forms of borrowing. It’s not hard to see why it took off. But every form of credit gets the seatbelt fitted once enough people are driving too fast in it – store cards went through this in the 2000s, payday lending in the 2010s. BNPL’s turn has simply come round.
What worries me is the unintended effects of these regulations. Fair4All Finance estimates the stricter affordability checks could exclude 10-30% of current users from BNPL altogether. That need for quick, flexible credit doesn’t evaporate just because access tightens – it goes looking for a new front door, and people don’t always choose a safer one once theirs closes.
I see stronger regulation as a genuinely positive step, but the debate feels incomplete. Demand for short-term credit won’t disappear when BNPL becomes harder to access, so are we solving the problem, or just moving it somewhere less visible? As the market evolves, are we paying enough attention to the consumers who may end up caught in the middle?

James O’Donnell, director of research and consulting, TransUnion

BNPL coming under FCA regulation is a welcome step in the long journey to bring the industry into alignment with broader consumer protections already in-place across other credit products. It is undoubtedly a positive development that will benefit consumers.

In many respects, consumers are already reaping the benefits of these changes, with BNPL leaders having pre-emptively introduced many of the protections into their processes well in advance of the regulation coming into effect.

We are particularly pleased to see clearer obligations for BNPL lenders to establish that consumers can afford the credit they’re seeking. This has proven to be a crucial protection, with TransUnion’s Affordability Study showing that 42% of consumers say affordability checks would make them feel safer when using BNPL products. Many consumers report that they already take a cautious approach, with over two thirds (67%) carefully consider affordability before taking out a BNPL agreement. However, nearly one in five (18%) simply assume that they can manage it later.

We’re also pleased to see greater transparency around the credit product obligations the consumer is entering into – and the expansion of support mechanisms for consumers when difficulties arise. Of those support mechanisms, perhaps the most important is the greater recourse for independent escalation for complaints via the Financial Ombudsman Service (FOS).

Luke Seaman, Head of Global Policy, Klarna

Klarna has prepared for regulation since calling for it in 2020, so we welcome this moment. The FCA’s rules largely formalise what we already do: we run affordability checks, show costs up front and treat customers well. Our survey shows Brits welcome new protections like section 75 and Financial Ombudsman access; this regulation gives them several huge new reasons to ditch the credit card, especially for larger purchases.

Tiago Veiga, CEO at Aurum Solutions

Rules are written in policy statements, but they’re delivered in back offices. Every protection in this regime depends on operational teams executing consistently: assessing affordability, communicating at the right moments, and evidencing every decision. So, while the headlines will be about consumers, the real story over the next year will be operational. As with most regulatory transitions, only firms with well-run, evidenced and well-automated operations will absorb this comfortably. For the rest, the processes that got them here were designed for an unregulated business, and they won’t be enough for a regulated one.

John Webb, Head of Consumer Affairs, Experian UK&I

It’s clear people of all ages have enjoyed the convenience of BNPL, helping them managing their monthly budgets affectively and without getting into difficulty. 

As with all forms of borrowing, it’s important to be aware of the commitments you’re taking on and keep a close eye on what your repayments will be. And remember that each time you open a new BNPL account, it will appear on your credit report, which lenders may consider when you apply for new borrowing, such as a loan, credit card or mortgage.