The Financial Conduct Authority has started regulating Buy Now Pay Later in the UK, requiring third-party lenders to assess whether customers can afford repayments before extending credit and bringing a market used by almost 11 million adults into the consumer credit framework for the first time.

The rules took effect on 15 July 2026 and apply to newly issued deferred payment credit agreements where the lender is separate from the retailer. Providers must now be authorised by the FCA or operate under a temporary permission, comply with the Consumer Duty, explain repayment terms clearly, support customers in financial difficulty and allow eligible complaints to be taken to the Financial Ombudsman Service.

The reforms give BNPL users protections that apply across other regulated credit products, including proportionate affordability checks before borrowing and, in some cases, the right to seek a refund from the lender under Section 75 of the Consumer Credit Act. Agreements entered into before 15 July remain outside the new regime, while retailers that provide their own credit continue to benefit from an exemption.

The change brings the UK closer to the European Union’s revised Consumer Credit Directive, which expressly brings many BNPL schemes within consumer credit regulation. The UK and EU frameworks are not identical, but both are moving away from treating short-term, interest-free instalment products as a separate category requiring fewer protections than other forms of borrowing.

A £13 Billion Market Comes Under FCA Oversight

BNPL has grown from a relatively small checkout option into a significant part of UK consumer credit. The FCA said the market expanded from £60 million in 2017 to more than £13 billion in 2024. Its Financial Lives Survey found that 20% of UK consumers, equivalent to 10.9 million adults, used BNPL in the 12 months to May 2024.

The product initially gained traction by allowing shoppers to divide purchases such as clothes, electronics and furniture into several interest-free payments. Its use has since spread into routine household spending. Research published by Fair4All Finance found that one in five financially struggling or financially squeezed BNPL users had used the product for essential purchases such as groceries and bills.

The expansion created a regulatory gap. Consumers could accumulate multiple agreements from different lenders without the same affordability protections, complaint rights and supervisory standards that apply to credit cards and personal loans. The FCA said repeated borrowing had sometimes left customers without a clear view of what they owed, contributing to missed payments, late fees and worsening financial circumstances.

Under the new regime, lenders must carry out checks proportionate to the amount, product and customer circumstances. The FCA has not prescribed one universal assessment for every transaction. Firms can tailor their approach, but they must be able to show that their lending decisions are responsible and that customers can afford the repayments without creating financial harm.

The Next Test Is Whether Checks Disrupt Checkout

For BNPL providers and retailers, compliance is only part of the challenge. The commercial test is whether lenders can conduct the required assessments without undermining the fast checkout experience that helped BNPL grow.

Radi El Haj, Chief Executive Officer at payments infrastructure provider RS2, said affordability checks should be embedded within the transaction rather than added as a separate stage after the customer chooses BNPL.

“Affordability checks can’t be a separate step tacked onto checkout. That’s where lenders will lose customers. They need to happen instantly, as part of the transaction itself, using the same real-time data lenders already rely on for fraud checks. Do that well and the customer barely notices. Do it badly and they abandon the basket.”

His argument shifts the focus from whether lenders comply to how they comply. A provider that requires customers to leave checkout, submit extensive information or wait for a manual decision risks losing the sale even when the applicant ultimately qualifies. Lenders with real-time decisioning systems may be able to assess affordability using customer data, credit information, account history and risk indicators while keeping the process within the existing payment journey.

El Haj compared the change with the implementation of Strong Customer Authentication under the revised Payment Services Directive. Some merchants and payment firms initially treated the additional authentication requirement as a compliance step separate from checkout design, contributing to failed payments and customer abandonment. Others used exemptions, risk-based authentication and improved interfaces to reduce disruption.

“We saw something similar play out with PSD2 and Strong Customer Authentication a few years back. Plenty of firms treated it as a box-ticking exercise and ended up with checkouts that dropped customers left and right. The firms that treated it as a design problem came out the other side with smoother journeys than they started with. I’d expect BNPL regulation to sort providers the same way.”

The comparison has limits because affordability assessments and payment authentication serve different purposes. Both, however, require providers to introduce regulatory controls at a point in the customer journey where delays and additional steps can reduce conversion. The firms best able to combine compliance, data and payment orchestration may therefore gain an advantage over providers relying on fragmented systems.

Up To 30% Of Existing Users Could Be Rejected

The protections may also reduce access for consumers who previously used BNPL without undergoing a regulated affordability assessment. Fair4All Finance estimates that between 10% and 30% of current users could be rejected once the regime is fully implemented.

The organisation said exclusion is likely to be concentrated among consumers in financially precarious positions, including people who use interest-free instalments to manage cash flow. Its research found that 41% of BNPL users had struggled to make a repayment, while around two in five of those who experienced repayment difficulty had cut back on essentials.

Santosh “San” Nakra-Shah, Co-founder and Managing Partner at ChilliMint Europe, said the regulation is overdue but warned that rejecting a BNPL application does not remove the applicant’s need for short-term credit.

“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.”

That creates what Fair4All Finance describes as an exclusion paradox. Preventing unaffordable borrowing protects consumers only when those rejected do not replace BNPL with a higher-cost or less regulated product. Some could turn to overdrafts, credit cards, high-cost lenders or unlicensed credit if affordable alternatives are unavailable.

The FCA has acknowledged that some regular BNPL customers may find the product harder to access. It argues that lending should not proceed when repayment would worsen a consumer’s financial position and that proportionate checks are necessary to prevent unsustainable debt.

Nakra-Shah said the next phase of the policy debate should consider where excluded demand moves.

“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?”

Consumer Protection Could Strengthen Trust In BNPL

The rules may reduce approval rates, but they could also make BNPL more acceptable to consumers who were previously concerned about weak protections. Users will receive clearer information before borrowing, including payment dates, amounts and the consequences of missing an instalment. Lenders must provide appropriate help when customers experience financial difficulty, which can include accepting lower repayments or allowing more time to pay.

Consumers can now take complaints relating to regulated agreements to the Financial Ombudsman Service. Some purchases will also qualify for Section 75 protection, allowing customers to pursue the lender when goods or services are misrepresented, faulty or not supplied, subject to the statutory conditions.

El Haj said those protections could improve the sector’s reputation and support providers capable of meeting the higher operational standard.

“There’s a genuine upside here too. Section 75-style protections and access to the Ombudsman should build real trust in a product that’s had a bit of an image problem, which in turn should grow the market for the lenders doing this properly. But it raises the bar on infrastructure. Real-time decisioning, clean audit trails and BNPL providers actually talking to the rest of the payments stack aren’t optional extras anymore.”

The regulatory transition could also change the competitive structure of the market. Larger providers have had more time and resources to prepare credit assessment, reporting, complaints and customer support systems. Smaller lenders face the same conduct requirements while operating on transactions that often generate limited revenue, potentially increasing pressure to partner with larger platforms, change their products or leave the market.

BNPL Competition Moves From Frictionless Credit To Frictionless Compliance

The rules do not end the commercial case for BNPL. Interest-free instalments can help customers spread costs and manage irregular cash flow when the borrowing remains affordable. The FCA has said it wants the sector to continue innovating and growing sustainably rather than restricting access for customers who can repay.

What changes from today is the basis of competition. Providers previously competed mainly on merchant distribution, approval speed, customer reach and the simplicity of the checkout experience. They must now combine those features with affordability assessments, regulatory reporting, audit trails, financial difficulty support and Ombudsman exposure.

The strongest providers will be those able to meet those obligations without turning a fast checkout option into a slow credit application. That requires affordability data, fraud controls, credit decisioning and payment processing to operate as one connected system rather than a series of separate checks.

The longer-term risk is that regulation divides the market between customers who retain access to a safer BNPL product and those pushed toward more expensive borrowing. The longer-term opportunity is that consumer protections make BNPL a more trusted and sustainable part of the credit market.

The rules settling that balance began today. Their impact will be measured not only by complaint numbers and default rates, but also by checkout conversion, approval rates, provider exits and where consumers denied BNPL seek credit next.