Up to 30 million people in the UK have used Buy Now Pay Later schemes including Klarna and Clearpay for everything from groceries to gifts
Millions of people across the UK like to spread the cost of their shopping. Whether this is through a credit card that gives extra time to pay or through firms which allow payment in instalments, many find it easier to pay for purchases.
It is estimated that up to 30 million people in the UK alone have used Buy Now Pay Later lenders such as Klarna and Clearpay at some point. However a change is in place to protect shoppers as the firms are to be brought under the regulatory regime run by City watchdogs.
The move by the Financial Conduct Authority (FCA) has been hailed as a ‘big step forward by money experts amid concerns many people are taking on debts they will struggle to repay. BNPL has ballooned in popularity in recent years with people using the system of deferred payments to buy everything from a new dress or smartphone to pizza.
Under the shake-up, BNPL firms must carry out affordability checks before lending and offer support to struggling borrowers. Customers will also gain the right to complain to the Financial Ombudsman Service if things go wrong.
The move follows explosive growth in the sector, with the market surging from just £0.06bn in 2017 to more than £13bn in 2024. According to the FCA’s 2024 Financial Lives Survey, 20% of UK consumers – 10.9 million adults – used BNPL in the 12 months to May 2024.
What will change?
BNPL will now be subject to the FCA’s Consumer Duty rules. Borrowers will benefit from:
- Clear information about when payments are due, how much must be repaid and what happens if they miss instalments
- Affordability checks to ensure repayments are manageable
- Support for those in difficulty, including signposting to free debt advice
- Access to complaints and compensation through the ombudsman
Lenders must be authorised by the FCA and can register for a temporary permissions regime between May 15 and July 1. They will then have six months to apply for full authorisation once the regime begins.
Sarah Pritchard, deputy chief executive at the FCA, said: “We want the Buy Now Pay Later sector to thrive – it provides an important source of credit to many – and we will continue to support firms who want to develop innovative new products.
“But crucially, no one should be lent to if they’re unable to repay, because that could worsen their financial situation. Now Parliament has given us the powers, we’re putting in place proportionate protections for the 11 million people who use it.”
Currently, unregulated BNPL agreements – known in legislation as deferred payment credit – sit outside the full consumer credit regime, leaving repeat users potentially exposed.
Credit score warning
Riz Malik, director at Southend-on-Sea-based R3 Wealth, warned borrowers not to treat the products lightly. He told Newspage: “Excessive use of BNPL can have an impact on your credit score which could cause complications if applying for other forms of finance such as a mortgage. I’ve seen pages on credit files for BNPL, usually for nominal amounts. The public should be warned that just because you can pay for that phone, coat or pizza (yes pizza) in monthly instalments doesn’t mean you should.”
Scott Taylor-Barr, principal adviser at Leicester-based Barnsdale Financial Management, said the tougher regime was “long overdue” and argued there should be a floor on small purchases.
He said: “These extra protections for consumers are long overdue and, given that the target market for these products are more likely to be classified as potentially vulnerable under the FCA guidelines, then it’s right that more thought should be given to the lending.
“Whether retail staff will be given the training, resources, and time to do the job properly will be the next test of the changes and how effective they ultimately are. One thing I would have liked to see introduced is a minimum transaction size for BNPL-type lending, say £100, as taking credit for a takeaway is concerning.”
Ranald Mitchell, director at Norwich-based Charwin Mortgages, described the reforms as a “big step forward”. He said: “BNPL has exploded because it fills a gap, and too often that gap is tight household budgets. When the weekly shop, school costs or a replacement washing machine has to go on instalments, it’s a sign many people are relying on BNPL as a coping tool, not a choice.
“The new FCA regulation is a big step forward. Clearer terms, proportionate affordability checks and proper support when someone is struggling should help stop these silent debts stacking up across multiple checkouts. For anyone aiming for a mortgage, this matters.
“Regular BNPL use can quietly eat into disposable income and undermine affordability, even if you’ve never missed a payment elsewhere. Used occasionally and repaid on time, it can be useful. Used habitually to make ends meet, it’s a warning light that needs to be taken seriously.”
Samuel Mather-Holgate, managing director & IFA at Swindon-based Mather and Murray Financial, said: “This area needed tightening up, because even though some BNPL might be interest-free, the fees that are charged if you miss a payment bring that equivalent rate through the roof. The regulator needs to keep a close eye on this to avoid the next payday loan scandal.”
The FCA said BNPL can help consumers manage cash flow when used responsibly, but stressed it remains borrowing. Borrowers struggling with repayments can seek free guidance through MoneyHelper and the Debt Advice Locator tool.
