What: New regulations require BNPL providers to conduct affordability checks and provide Financial Ombudsman access for UK consumers.

Why it is important: This regulatory shift transforms BNPL from an unregulated payment option into a regulated credit product, addressing growing concerns about consumer debt while reshaping how retailers approach flexible payment solutions.

The UK government is implementing significant changes to the buy now, pay later (BNPL) sector, introducing mandatory regulations that will take effect in 2026. These new rules will require BNPL providers such as Klarna and Clearpay to conduct thorough affordability checks before lending, ensuring consumers can manage their repayments. The regulations will affect more than 10 million UK consumers who currently use these services, providing them with enhanced protections including fairer and faster access to refunds and the right to complain to the Financial Ombudsman. The measures come in response to the Treasury's consultation on BNPL services initiated in October 2024, bringing these payment options in line with other credit products. Industry experts, including Jacqui Baker from RSM UK, note that this regulatory change will significantly impact the retail landscape, requiring businesses to balance seamless checkout experiences with greater transparency and consumer protection. Recent data from Drapers' Connected Consumer 2025 report indicates that while overall BNPL usage has decreased to 12%, it remains particularly popular among younger demographics, with 62% of 25-to-34-year-olds using these services.

IADS Notes: The UK government's new BNPL regulations announced in May 2025 come at a crucial time in the sector's evolution. The past year has seen significant market expansion, with Klarna's move into physical retail in September 2024 and major retailers like John Lewis and Debenhams integrating BNPL services into their payment options. This growth has been accompanied by mounting concerns, as Imperial College Business School research in November 2024 revealed BNPL increases consumer spending by 10% while raising financial vulnerability concerns. The timing of these regulations is particularly relevant given that problem borrowing in the sector is growing at twice the industry's rate. While BNPL services have broadened their user base beyond young consumers, the high adoption rate among 25-to-34-year-olds (62%) mentioned in the Drapers report underscores the need for enhanced consumer protection measures. These new regulations align with industry developments such as Affirm's UK launch in November 2024, which emphasised responsible lending practices, suggesting a sector-wide shift towards more sustainable BNPL practices.

New ‘buy now, pay later’ rules to take effect next year in the UK