Experts React To The Latest Buy Now, Pay Later Regulation Updates

Buy Now, Pay Later lending has just come into a new chapter this morning after Financial Conduct Authority regulation officially came into force in the UK.

The new rules apply to deferred payment credit agreements offered by third party lenders. The FCA announced that lenders going into new agreements must now either hold the correct consumer credit authorisation or have temporary permission to operate. Lenders without either can no longer offer new Buy Now Pay Later agreements, although they can continue servicing agreements taken out before 15 July.

The government said shoppers using services from providers such as Klarna, PayPal and Clearpay will now receive protections in line with other regulated credit products. Lenders must now conduct affordability checks before giving people credit, customers can take complaints to the Financial Ombudsman Service if things go wrong, and people experiencing financial difficulty should receive debt advice and support before debt collection begins.

Rachel Blake, Economic Secretary to the Treasury, said, “We made a clear promise to give consumers the protections they deserve and today we are delivering.

“It is not fair that people using these products have had fewer rights than if they had paid by credit card. These new rules protect the consumer, with proper checks before credit is offered, real rights when things go wrong, and support rather than pressure if someone falls into financial difficulty.”

What Will Shoppers Notice?

The government expects most people to notice very little difference when making purchases, but the legal protections behind those transactions have changed.

Martin Lewis, founder of MoneySavingExpert.com, said, “Buy Now Pay Later done right, isn’t wrong. It’s fine for those who understand what they’re doing and make an active, one off decision to use it to spread the cost over a few months interest free.

“Yet too many don’t do that. They fall for BNPL’s ubiquity, use it constantly and build up a bank of unaffordable debt. Worse, not everyone knows it’s a debt. That is why it has been unsafe for some, and why I was one of those who campaigned strongly for the government to bring in this regulation, and why I’m delighted to see it happening now.

“Most people won’t notice any difference. These changes are primarily to ensure BNPL is sold responsibly and that there are protections for when things go wrong, which can be hugely damaging. These protections importantly include being able to appeal to the independent, free Financial Ombudsman Service over problems such as if your credit file is wrongly marked, or if BNPL has been mis sold rather than properly explained as a debt.”

The FCA said its new regime is intended to help consumers make informed borrowing decisions, encourage responsible and affordable lending, support customers facing financial difficulty, and give the regulator better sales data to supervise the market.

What Are Consumer Groups Saying?

Consumer groups and debt charities welcomed the start of regulation after years of campaigning.

Rocio Concha, Director of Policy and Advocacy at Which?, said, “Which? campaigned for regulation of Buy Now Pay Later (BNPL) providers such as Klarna and Clearpay, so it’s great news that this is finally happening and means users of these services will benefit from stronger safeguards.

“Key changes include access to the Financial Ombudsman Service if something goes wrong, as well as clearer information at checkout and affordability checks to help prevent people from taking on debt they can’t afford. Before choosing BNPL, shoppers should consider whether they can comfortably afford the repayments and understand the consequences of missing them. Regulation should make those decisions easier by ensuring people have clearer information and stronger consumer rights.”

Vikki Brownridge, Chief Executive Officer at StepChange Debt Charity, said, “Whilst BNPL can be a useful tool for spreading the cost of large expenses, our insight tells us those who use it are much more likely to be experiencing debt problems, putting them at risk of harm. Following years of campaigning by StepChange and others across the sector, we welcome these new consumer protections. Bringing BNPL products into line with other consumer credit products is an important step that will give borrowers stronger safeguards and greater confidence.”

Alison Walters, director of consumer finance at the FCA, said, “Millions of people use Buy Now Pay Later and, from today, they will have stronger protections. Consumers will benefit from affordability checks, clearer information, and greater support if they get into difficulty. They’ll also be able to complain to the Financial Ombudsman Service if something goes wrong. Our regulation will make sure people can continue to benefit from this type of borrowing, have the information they need to make informed decisions and the protections to help avoid unmanageable debt.”

And What Are Business Leaders Saying?

CEOs and founders have also shared their thoughts. Here’s what they say about the update…

Our Experts:

• Kristaps Zips, UK CEO, payabl.
• Santosh “San” Nakra-Shah, Co-Founder and Managing Partner, ChilliMint Europe Limited
• Radi El Haj, CEO, RS2
• Scott Dawson, CEO, DECTA

Kristaps Zips, UK CEO, payabl.

“The regulation of Buy Now Pay Later products, coming into force today, creates benefits for both consumers and providers.

“It brings the sector within the scope of principles like Consumer Duty to better protect customers from unsustainable debt, while giving providers the much-needed clarity around expectations for keeping customers safe.

“BNPL has proven incredibly popular with UK consumers in recent years, offering a more convenient payment option at the checkout for those with tighter budgets to spread the cost of purchases, especially when compared to more traditional payment methods.

“The new changes will require BNPL providers to perform robust checks, as well as providing clear and comprehensive details about the conditions of their repayments, including the risks of missed payments. Together, these will help customers make informed decisions about how they pay.

“Providers will also benefit from being part of a more formal supervisory setting with clearer regulations that will allow them to develop long-term, sustainable business models.

“While there have been concerns over BNPL, it’s clear that it has provided an important service for many, while bringing innovation to the checkout, retail and payments spaces. What’s needed going forward is close, sustained monitoring of the impact of regulation to ensure a good balance between safeguarding consumers, ensuring adequate access and fostering continued innovation in the sector.”

Santosh “San” Nakra-Shah, Co-Founder and Managing Partner, ChilliMint Europe Limited

“From today, 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?”

Radi El Haj, CEO, RS2

“BNPL coming under FCA regulation from 15 July has been a long time coming, and honestly, most of the industry has known it was heading this way for a couple of years now. What actually matters here is what it means for the ‘plumbing’ underneath these transactions.”

“It also moves the UK closer to the direction the EU has already taken with its revised Consumer Credit Directive, which brings BNPL into consumer credit rules there too, so the regulatory gap between UK and EU markets is narrowing rather than widening.”

“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.”

“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.”

“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.”

Scott Dawson, CEO, DECTA

“Bringing Deferred Payment Credit, better known as Buy Now Pay Later, inside the regulatory perimeter is long overdue. The trouble is the shape of the perimeter the Government has drawn.

“From 15 July, whether a shopper gets the new affordability checks, access to the Financial Ombudsman and potentially Section 75 protectiondepends on two things they cannot possibly see at the checkout – whether the lender happens to be a different business from the merchant, and whether entered into an agreement before or after a particular Wednesday in July. One of the big selling points of BNPL in retail was how easy it is to just put a purchase on a three-month repayment plan with barely a thought, but now knowing how you’ll be protected depends on understanding this regulation and then how a particular retailer relates to the company providing the credit.”

“That’s a strange place to land for a regime built on transparency. Consumer risk doesn’t change according to the corporate structure sitting behind the credit, and the carve-out for merchant-provided DPC is most valuable to the largest retailers and platforms, precisely the businesses with the balance sheet to lend on their own account. Smaller merchants, who depend on third-party providers, will carry the regulated cost while their biggest competitors do not.”

“None of this is an argument against the rules. Interest-free instalment credit grew up faster than the framework around it, and requirements on disclosure, arrears support and redress are long overdue. But the industry should be honest that this is a first draft, and the government should expect to revisit those exemptions sooner than it currently plans.”