The UK government has announced plans to regulate 'Buy Now, Pay Later' (BNPL) services, aiming to provide consumers with stronger protections and rights. This initiative will bring BNPL providers under the oversight of the Financial Conduct Authority (FCA), aligning them with traditional credit products.

BNPL services, offered by companies like Klarna and Clearpay, allow consumers to spread payments over time without traditional credit checks. The popularity of these services has surged, with over 10 million UK users as of 2025. However, concerns have grown over shoppers using BNPL for necessities like food and energy, potentially leading to unmanageable debt.

The new regulations will require BNPL providers to conduct affordability checks, ensuring that consumers can afford repayments before extending credit. Additionally, companies must provide clear, accessible information about loan terms, including potential fees and consequences of late payments. Consumers will also gain access to the Financial Ombudsman Service for dispute resolution, and BNPL agreements will be reported to credit reference agencies, affecting consumers' credit scores.

Economic Secretary to the Treasury, Emma Reynolds, stated, "From next year, BNPL firms will need to follow consistent standards—so shoppers will know exactly what they're signing up to when they opt to break up payments, whether they can afford it, and how to get help when things go wrong."

Major BNPL providers have expressed support for the regulations. Klarna, for instance, has already implemented credit checks and other measures in anticipation of regulatory changes. The company views the regulations as a means to reduce uncertainty and raise barriers for new entrants, potentially stabilizing the industry.

The move to regulate BNPL services follows years of consultation and draft plans first proposed in 2023. The rapid expansion of the BNPL market, coupled with rising consumer debt concerns, has accelerated the need for formal oversight. Previous regulatory efforts, such as the Consumer Credit Act 1974, did not encompass BNPL services, highlighting the necessity for updated legislation.

The new regulations aim to protect consumers from unmanageable debt by ensuring responsible lending practices. However, there is a potential for reduced availability of BNPL services, which could impact consumers who rely on them for flexible payment options.

BNPL providers will need to adapt their business models to comply with the new regulations, which may include increased operational costs and stricter requirements. This could lead to consolidation in the industry, with smaller players potentially exiting the market.

The UK's decision to regulate BNPL services marks a significant step toward aligning emerging financial technologies with traditional credit products, ensuring consistent consumer protections. As the regulations take effect, both consumers and industry players will need to navigate the evolving landscape of BNPL services, balancing innovation with responsible lending practices.