What: New UK regulations transform BNPL services from unregulated payment options to formally supervised financial products, requiring affordability checks and enhanced consumer protections.

Why it is important: As retailers increasingly integrate BNPL services into both online and physical stores, these regulations establish crucial guidelines for responsible lending while maintaining payment flexibility. The UK government's decision to bring Buy Now Pay Later providers under Financial Conduct Authority supervision from June 2025 marks a watershed moment for retail finance.

This regulatory framework mandates affordability checks, clearer customer information, and proper complaint channels, addressing concerns about the sector's rapid growth. Recent figures indicate that one in eight UK adults now use BNPL services, often for essential purchases like groceries and household bills. The regulation aims to protect consumers from potentially unmanageable debt while maintaining the benefits of payment flexibility. The challenge lies in balancing the seamless customer experience that made BNPL popular with responsible lending practices. The new requirements will particularly impact younger consumers and families who have increasingly relied on these services during the cost-of-living crisis. This shift represents a broader evolution in retail finance, where transparency and consumer protection are becoming as crucial as convenience.

IADS Notes: The retail payment landscape has undergone significant transformation, as evidenced by Klarna's expansion into physical retail in September 2024 and John Lewis's adoption of BNPL in November 2024. Research from May 2025 reveals concerning trends, with Klarna reporting a 17% increase in credit defaults. This regulatory intervention comes as Imperial College Business School's November 2024 study showed BNPL services increase consumer spending by 10% while raising financial vulnerability concerns. The timing is particularly relevant as major retailers like Debenhams and Walmart have recently launched or expanded their BNPL offerings in March 2025.

The fine print era: Rethinking retail finance