Buy Now, Pay Later (BNPL) payments are becoming increasingly popular in the UK and globally, allowing customers to pay for their purchases in a series of delayed instalments.
Customers who opt into BNPL for a purchase don’t need to pay the full amount immediately, much like with other types of loans and credit. However, BNPL has a few advantages: it’s usually offered to the customer at the point of sale so they don’t need to interact with financial institutions or credit providers. Additionally, BNPL repayments are often interest-free.
Those features make BNPL a convenient option — but the model includes several risks.
Customers who do not fully understand BNPL may eventually find themselves unable to afford the full purchase amount, and some may encounter late fees and refund complications.
The UK could soon address certain concerns around the payment model.
UK’s BNPL Rules Could Change
In an October 17 notice, the UK government and HM Treasury recognized that BNPL customers do not currently have the same protections found in other consumer credit products.
Changes are now underway to provide greater consumer protections.
The UK’s proposed regulations will bring BNPL companies under the supervision of the Financial Conduct Authority (FCA) and apply the Consumer Credit Act (CCA).
Under the proposal and in line with FCA affordability rules, BNPL companies will need to make sure that UK shoppers can afford repayments before offering a loan. This change aims to prevent customers from “building up an unmanageable debt.”
Buy Now, Pay Later companies will also need to provide clear information about agreements to help customers make informed decisions and understand the risks around late payments. Part of this requirement concerns providing clear information online, where BNPL offers are often found.
Finally, customers will gain redress rights — including through Section 75 of the CCA, which allows customers to claim refunds from the lender on qualifying purchases. Customers will also be able to make complaints through the Financial Ombudsman Service.
Millions Could Benefit
Changes to BNPL regulations could benefit a significant portion of the public, as the UK’s latest announcement claims that the rules will impact millions of shoppers in the country.
In an associated consultation document, HM Treasury said that about 14 million consumers in the UK used BNPL services in the 6 months leading up to January 2023.
The true adoption rate may be higher. A separate survey from Finder.com found that 50% of the UK population — or about 26.4 million people — have used BNPL services at some point.
High BNPL adoption rates make the changes a critical addition to UK consumer payments, but they will not take effect immediately. A consultation phase will last until late November, allowing the government to lay out legislation in 2025. Later, the FCA will finalise the rules.
The rules are expected to become effective in 2026.
