From 2026, Buy-Now, Pay-Later (BNPL) firms will need to work within a stricter regulatory framework. Following a consultation last year, the Government intends to bring BNPL under formal regulation, aiming to end unregulated borrowing.

BNPL refers to a type of interest-free instalment credit that allows the borrower to split their purchase cost into regular repayments within a year and in 12 or fewer instalments. Examples of these third party providers are Klarna, Clearpay and Paypal Pay. Many businesses partner with these and similar providers to provide a BNPL option at checkout to their online customers.

This type of credit is currently unregulated, which means the businesses offering them are not overseen by the Financial Conduct Authority (FCA), nor do they have to comply with the Consumer Credit Act 1974’s requirements. 

What’s changing?

BNPL has grown rapidly in recent years, with millions now using it as a way to spread the cost of purchases. In that time, concerns have grown around affordability, lack of clear terms, and delays in processing refunds. 

The new rules aim to change that by:

• Requiring affordability checks before people can borrow
• Ensuring clearer information upfront about what customers are signing up to
• Providing fairer and faster access to refunds
• Giving customers the right to complain to the Financial Ombudsman, as with other credit products

At the same time, the government is reforming the outdated Consumer Credit Act to remove outdated and confusing rules, with oversight of all credit types covered by the Act shifting to the Financial Conduct Authority (FCA). This move is intended to reduce red tape while strengthening consumer protections.

What does this mean for your business?

If you use a third-party BNPL provider, these changes will probably affect how those services are delivered and what your customers experience at checkout. 

What to be aware of:

• Process changes at checkout – Third-party BNPL providers will need to carry out affordability checks before approving purchases. This could affect the speed or flow of the checkout process, particularly for new users.

• Customer communication – Your customers will receive more detailed information about repayment terms and their rights before they complete a purchase. You’ll want to be sure any information on your website outside of the checkout areas maintained by your BNPL provider is consistent, so that there are no surprises or confusion.

• Refunds and returns – The new rules aim to make refunds faster and fairer for customers using BNPL. You may need to work closely with your BNPL provider to ensure your return and refund policies support this.

• Complaint handling – Customers will now be able to escalate complaints about BNPL services to the Financial Ombudsman. While the BNPL provider will take the lead, good customer service from your side can help avoid issues being pushed further.

Overall, these changes aim to build trust in BNPL – and that could benefit businesses that use it as a flexible payment option to drive sales. Now is a good time to review how your BNPL partner operates and whether any changes are needed to keep up with the new rules.

See: https://www.gov.uk/government/news/new-rules-to-end-buy-now-pay-later-wild-west-protect-millions-of-shoppers-and-drive-growth