UK BNPL rules force affordability checks on Klarna, Clearpay
New UK regulations requiring Buy Now Pay Later lenders to conduct affordability checks will reshape the market for European fintechs while granting shoppers unprecedented refund rights.
From Wednesday, Buy Now Pay Later lenders must secure authorization from the Financial Conduct Authority to operate in the UK. The new rules mandate instant affordability checks on every transaction, grant shoppers access to the Financial Ombudsman Service, and extend section 75 refund protections to purchases over £100.
For European fintechs, the UK represents a critical revenue pool that is now subject to strict compliance frameworks. Credit agency Experian recorded more than 100 million transactions by 8.5 million UK customers in 2025, generating over £7bn in spending, with 98.5% of balances repaid on time. Firms like Klarna and Clearpay, which built massive operations allowing interest-free instalments, are now formally aligned with traditional credit card providers.
Leading providers have publicly welcomed the regulatory clarity. A Klarna spokesman noted that the FCA's rules largely formalise existing practices, such as upfront cost disclosures and credit reporting. The company, which says its average customer is 38, emphasised that robust regulation strengthens consumer confidence.
However, the mandatory affordability checks introduce immediate friction at the checkout. Kate Pender, chief executive of Fair4All Finance, estimates that 10% to 30% of BNPL users will fail these conservative tests. She warned that nearly half of those likely to be rejected have never missed a payment, yet their need for credit will not simply disappear.
Campaigners fear the new barriers could push younger consumers or those with past repayment issues toward unregulated alternatives. "Loan sharks would be thrilled at the prospect," Pender said.
Debt charities strongly support the changes but point out that some in-house retailer BNPL products will escape the new rules. Matthew Sheeran of Money Wellness noted that people are increasingly spreading smaller, essential purchases across multiple BNPL agreements rather than using them for occasional high-value items.
"It didn't feel like debt. It felt like convenience," said Tim Riesner, who accumulated £24,000 in debt using BNPL and other credit before seeking help. "Before you know it, it's thousands."
