Retailers are bracing for changes to their online checkout journeys as the UK’s new buy now, pay later (BNPL) regulations come into force today.
The Financial Conduct Authority has begun regulating deferred payment credit, the interest-free form of borrowing commonly offered through providers such as Klarna and Clearpay.
Under the new regime, lenders must carry out proportionate affordability checks before allowing shoppers to borrow, while providing clearer information about repayment dates, instalment amounts and the consequences of missed payments.
Providers must also offer greater support to customers experiencing financial difficulty, while shoppers will be able to escalate complaints to the Financial Ombudsman Service.
The rules represent a significant shift for a market that has grown from £60m in 2017 to more than £13bn in 2024. Around 11 million UK adults used buy now, pay later during the year to May 2024, according to the FCA.
Although retailers offering credit from third-party providers are exempt from direct credit-broking regulation, lenders must now be fully authorised by the FCA or hold temporary permission.
Retailers will therefore need to review their payment partners and ensure that checkout journeys provide shoppers with the information required under the new rules. Businesses offering their own interest-free credit will remain outside the regime.
The changes could also have commercial implications for retailers if tougher affordability checks reduce the number of shoppers able to use the payment method.
Research highlighted by the BRC suggested that as many as 30 per cent of existing users could be declined under the new system, potentially placing pressure on conversion rates and average order values.
Buy now, pay later is particularly popular for clothing, footwear, electrical goods and household products, meaning retailers in those categories could be among the most exposed to any drop in approval rates.
Businesses are being encouraged to consider whether they offer a broad enough range of payment options for customers who may struggle to cover larger purchases upfront but no longer qualify for buy now, pay later.
The new safeguards are intended to prevent shoppers from taking on unaffordable debt while preserving access to a payment method that has become an important budgeting tool for millions of households.
FCA deputy chief executive Sarah Pritchard said the regulator wanted the sector to continue growing but stressed that customers should not be allowed to borrow when they could not afford the repayments.
The introduction of formal regulation may ultimately strengthen trust in buy now, pay later, but crucially, it also marks the end of the frictionless approval process that helped fuel its rapid rise across UK retail.
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