BNPL regulation is shifting

Here’s what you need to know

The FCA's final rules on Buy Now Pay Later take effect in July 2026. For BNPL providers, the clock is ticking – and the biggest challenge isn't authorisation. It's evidence.

Daniel Gilby Associate Director 15/04/2026

Buy Now Pay Later has operated in a regulatory grey zone for almost a decade. That ends on 15 July 2026, when the FCA’s new rules bring Deferred Payment Credit – the formal name for interest-free BNPL – under full regulatory oversight for the first time.

The final rules, published in February 2026 (PS26/1), are not a surprise. The direction of travel has been clear since the Woolard Review in 2021. But the detail matters, and many BNPL firms are only now reckoning with what compliance actually looks like in practice.

A market that’s outgrown its regulatory framework

The numbers tell the story. The UK BNPL market grew from £0.06 billion in 2017 to over £13 billion in 2024. The FCA’s Financial Lives Survey found that 10.9 million UK adults (one in five consumers) used BNPL in the 12 months to May 2024, up from 8.8 million (17%) the year before. BNPL now accounts for 8% of UK ecommerce transaction value.

That growth happened without the obligations that apply to every other form of consumer credit. No mandatory affordability checks. No requirement to evidence consumer understanding. No Financial Ombudsman jurisdiction. From July, all of that changes.

What the rules require

BNPL firms will need FCA authorisation. They’ll need to conduct affordability and creditworthiness assessments on every transaction, regardless of value. They’ll need to provide clear pre-contract information at the point of checkout, including when payments are due, how much they’ll be, and what happens if a customer misses one.

Critically, BNPL will fall within the scope of the FCA’s Consumer Duty. That means firms must deliver good outcomes across four areas: products and services, price and value, consumer understanding, and consumer support. And they must be able to prove it.

For firms that have spent years optimising checkout flows for speed and minimal friction, this represents a fundamental shift. The product’s appeal has always been its simplicity. Regulation now asks whether that simplicity has come at the cost of genuine comprehension.

The consumer understanding gap

This is where it gets challenging. Consumer Duty doesn’t just ask whether customers say they understand a communication, it asks whether they actually do. In our experience, this distinction is the one that catches firms out. A customer tapping “I agree” at checkout is not evidence the FCA will accept.

The FCA’s own research paints a stark picture. BNPL users are, on average, younger, less creditworthy, and carry higher levels of unsecured debt than the general population. They are almost twice as likely to be in serious financial distress.

Citizens Advice has documented the consequences. Its research found that two in five BNPL users (42%) had borrowed from other sources – credit cards, overdrafts, friends and family, even payday loans – to pay off what they owed. Among 18 – 34 year olds, that figure rose to 51%. The problem is accelerating: in 2025, Citizens Advice helped 7,468 people with BNPL issues, a 35% increase on 2024 and more than four times the number helped in 2022. In January 2026 alone, they helped 844 people, almost double the same month two years earlier. Dealing with debt repayments was the primary issue in 84% of those cases.

These are not customers who can be assumed to understand a credit agreement because they clicked a button. These are customers the FCA has identified as disproportionately vulnerable – and Consumer Duty requires firms to evidence that their communications work for vulnerable consumers specifically, not just for the general population.

What firms don’t yet know

Most BNPL providers have never tested whether their customers genuinely understand what they’re agreeing to. They have no baseline data on comprehension of checkout flows, payment reminders, arrears notices, or terms and conditions. That evidence gap is now a compliance gap.

There are several specific areas where BNPL firms will need answers they don’t currently have.

First, do customers understand the full nature of the credit agreement at the point of sale, beyond the fact that they are deferring payment? This includes specific terms, consequences of missed payments, and the ability to distinguish between BNPL and other payment options. Second, are existing communications adapted to vulnerable customers such as young users, those in financial difficulty, and those with low financial literacy and confidence? And finally, is the call to action in payment reminders and arrears communication clear enough to drive the right behaviour? If customers don’t understand what they need to do and when, the outcomes the FCA is looking for won’t materialise.

Our experience from the broader Consumer Duty landscape in banking suggests this last point is the most common area of failure. Across the communications testing programmes we’ve run in retail banking and wealth management, call to action consistently underperforms against purpose and key message comprehension, even for established firms with mature communication processes.

BNPL firms, entering regulation for the first time, should expect their starting position to be significantly weaker.

What good looks like

The firms that navigate this well will be those that treat Consumer Duty not as a compliance checkbox but as an opportunity to improve how they communicate with customers. The evidence requirement creates a forcing function. If you have to test whether customers understand your checkout flow, you’ll find out where it fails and fixing those failures improves conversion and reduces complaints alongside satisfying the regulator.

The practical steps are clear. Test communications before they go live – quantitatively at scale for high-volume, low-complexity messages, and qualitatively in depth for complex documents and vulnerable customer segments. Build a baseline of comprehension data now, so you have evidence from day one of regulation. Monitor on an ongoing basis, because Consumer Duty is not a one-time audit, it’s a permanent obligation with permanent evidencing requirements.

And don’t treat vulnerability as an afterthought. The FCA has already flagged BNPL users as a disproportionately vulnerable population. Firms that test communications only with their general customer base and assume the results apply to everyone will find that assumption challenged.

The window is now

BNPL firms can register for the Temporary Permissions Regime from 15 May 2026. By that point, the firms that are ahead of the curve will already have evidence of consumer understanding to support their authorisation applications. Those that wait will be building the plane while flying it.

The regulatory direction here is not unique to BNPL. It follows the same logic the FCA applies to banking, insurance, and wealth management through Consumer Duty – the expectation that firms can demonstrate, with evidence, that their customers are receiving good outcomes. The methodology for generating that evidence is well established. The question is whether BNPL firms will choose to act on it now or scramble to catch up later.