No UK buy now, pay later regulation until 2026

Regulation of the UKʼs buy now, pay later (BNPL) market will not be in place until at least 2026. According to a report by Next Move Strategy Consulting, the currently unregulated market was valued at £9.52 billion in 2023 and predicted to be worth £49.6 billion by 2030.

E-commerce websites offer a range of BNPL payment options at checkout, enabling customers to pay in instalments, usually with zero interest. Some providers charge late payment fees, ranging from £2 to £15 or more, depending on the platform.

The most popular BNPL provider, Klarna, is also available on Apple Pay, and offers monthly financing for in-app and online transactions exclusively for US and UK users. Meanwhile, US-based BNPL giant Affirm entered the UK market in November.

Research for industry self-regulatory body the Lending Standards Board (LSB) highlighted that BNPL users with limited awareness of the service could easily build up unmanageable debt. LSB statistics show only half of BNPL users (52%) are aware of late payment fees, and around 15% have incurred them.

According to James Black, global regulatory partner at Hogan Lovells: “The combination of political pressure, perceived risk of consumer harm from over-stretched finances and the fact that BNPL was rapidly expanding and challenging established regulated players means that reform probably has become urgent now”.

“The government faces a challenge in juggling this with the wider reform of the Consumer Credit Act (CCA) regime. This [new regime] is likely to require significant up-skilling of staff and the introduction of beefed-up compliance and governance functions. Affected firms should probably be starting that work now in anticipation of the new framework,” he added.

Following the consultation on draft legislation, which closed last November, HM Treasury is expected to publish a response in the first half of 2025, once it has considered feedback from stakeholders. It is looking to change four main areas of the existing consumer credit regime: credit broking, advertising, pre-contractual requirements and distance marketing regulations.

BNPL firms must already comply with FCA financial promotions rules, as confirmed by the regulator in an August 2022 Dear CEO letter.

The draft legislation, along with the consultation, will go through scrutiny and approval by parliament, before passing on to the FCA for detailed rules and guidance. “Regulation day” will be 12 months from the date the draft legislation is made, during which firms will be able to register for the temporary permission regime.

“The firms in this sector have a track record of innovating at pace and I am sure that we will see new products and funding structures emerge to support growth and customer acquisition. Any new products will need to fit into the CCA framework, however, which can be fairly constrictive,” said Black.

“One area we are likely to see a lot of activity will be in the merchant funding space, to enable merchants to offer their own exempt BNPL products rather than relying on third parties. I wouldn’t be surprised if the card schemes also see an opportunity to be more active in this space.”

Regulate the unregulated

During the regulatory process, BNPL credit services are exempt from consumer credit regulations, as “agreements on fixed sum credit within 12 months” are not captured by article 60F(2) in the Financial Services and Markets Act 2000 Order 2021.

Once regulated by the FCA, BNPL services will be subject to its affordability and consumer protection rules, meaning providers will have to check customers can afford repayments before offering a loan. The Consumer Credit Act will also apply, allowing customers to claim refunds from their lenders and submit complaints to the Financial Ombudsman Service (FOS).

The new regime will require third-party lenders to become authorised under the FSMA, which specifically targets BNPL services with a different credit lender and merchant.

Other jurisdictions

In May 2024, the US Consumer Financial Protection Bureau (CFPB) announced that BNPL providers in the US are now subjected to the same consumer protection as conventional credit card providers, under the subpart B of Regulation Z. This includes rules on dispute resolution, refunds and periodic billing statements.

BNPL options cover a wide range of products in the US, from homestay marketplace Airbnb to luxury fashion company Louis Vuitton. Klarna recently signed a deal with DoorDash on March 20, offering BNPL payments for food delivery.

Meanwhile, Australia’s Treasury released an exposure draft bill on BNPL products on March 12. From June 10, 2025, all BNPL providers in Australia will be required to hold a credit provider licence and be subject to low-cost credit contract regulations, such as obtaining criminal history checks before issuing loans.

The Australian Securities and Investments Commission (ASIC) will monitor and approve the licensing, as well as release regulatory guidance closer to the date of their own regulation day.