UK BNPL rules take effect, reshaping a 13bn pound credit market
New UK regulations bring the booming buy now, pay later sector under formal oversight, threatening to consolidate the market and lock out a significant chunk of responsible borrowers.
New rules for buy now, pay later (BNPL) credit took effect in the UK on Wednesday, bringing the rapidly growing sector under the same regulatory framework as credit cards and personal loans. The Treasury described the move as the end of a "wild west" era, promising a "fairer deal" for consumers.
The need for oversight reflects the sector's explosive and largely unchecked growth. According to the Financial Conduct Authority, the BNPL market surged from £60m in 2017 to over £13bn in 2024. UK Finance data shows usage among adults jumped from 14% to 25% in just a single year, driven initially by young people but now expanding rapidly among older consumers.
Lenders like Klarna, Clearpay and PayPal must now conduct affordability checks before issuing credit, ensuring shoppers do not borrow more than they can realistically repay. They are required to provide transparent information about repayment schedules and late fees. Firms must also direct struggling borrowers to debt advice before deploying debt collectors. Furthermore, shoppers gain section 75 protection for purchases between £100 and £30,000, allowing them to claim against the lender if a retailer fails to deliver.
For the industry, the compliance burden is expected to trigger a shakeout. Ben Player, a partner at law firm TLT, noted that larger providers and those already authorised by the FCA are best positioned to absorb the new costs. He warned that smaller players may struggle with the complexity, "prompting consolidation… or even exits".
The rules may also sharply shrink the customer base. Fair4All Finance, a not-for-profit organisation, estimates that up to 30% of current BNPL users could be rejected under the new affordability checks. Its chief executive, Kate Pender, warned of a "real risk that many people who currently use BNPL responsibly could be unfairly excluded", potentially pushing them toward illegal lenders.
For investors tracking European fintech, the UK's regulatory shift highlights the sector's transition from high-growth disruption to heavily supervised consumer credit. Martin Lewis, the founder of MoneySavingExpert.com, noted that shoppers will now be able to complain to the independent, free Financial Ombudsman Service for issues such as mis-selling or an incorrect black mark placed on their credit file. While some predict the newfound legitimacy will attract hesitant retailers and consumers, the immediate reality for the industry is a tighter, more concentrated market.
