Buy Now Pay Later exploded by trading soft credit checks for softer regulation: lenders advanced £60 million in 2017 and more than £13 billion in 2024, almost entirely outside the Financial Conduct Authority’s rule-book. That run-way just shortened. On 18 July 2025, the FCA published its 112-page “CP25/23 – Deferred Payment Credit” consultation, the first step toward dragging every UK BNPL provider—now renamed Deferred Payment Credit (DPC)—into full consumer-credit supervision.
What the paper really says
The consultation proposes grafting the same DNA that governs overdrafts and credit cards onto BNPL. Lenders would have to:
- run proportionate credit-worthiness and affordability checks before approval;
- hand shoppers standardised pre-contract information at checkout, not in microscopic post-purchase emails;
- offer clear forbearance and sign-posting to debt advice when customers wobble; and
- submit to the Financial Ombudsman’s jurisdiction and Section 75 joint-liability rules—meaning a disputed Peloton bike can be clawed back from the lender, not just the merchant.
Firms that only provide DPC, today exempt from authorisation, will need a full FCA licence by mid-2026, while brokers must follow the consumer-duty regime from day one. The watchdog is taking comments until 26 September 2025; final rules will drop early next year, with a one-year transition.
Why now? Because 10.9 million Britons are already hooked
According to the FCA’s 2024 Financial Lives survey, one in five UK adults, 10.9 million people, used BNPL in the 12 months to May 2024, up from 8.8 million two years earlier. DPC usage is no longer confined to fashion splurges: 27% of users tapped it for everyday essentials, and 8% paid late-payment fees despite the “zero-interest” pitch. Critics warn that frictionless checkout disguises real leverage; the Treasury’s own data show a third of under-30s carried overlapping BNPL balances across three or more providers.
Winners, losers and the Klarna conundrum
- Big BNPL platforms—Klarna, Clearpay, PayPal Pay-in-4 claim they already meet 90% of the proposed rules and welcome “clear, proportionate regulation.” They also welcome the pain it will inflict on long-tail copycats that blossomed in the exemption’s shadow.
- Retailers face heavier integration work: checkout flows must surface credit disclosures and pass borrower data to lenders in real time. Expect some to drop BNPL or nudge customers toward interest-free cards that still deliver interchange revenue.
- High-street banks quietly cheer. As short-term instalment credit gains legitimacy, and compliance costs, banks’ own 0% purchase offers look less clunky. Barclays and NatWest are already piloting in-app Pay-in-3 features, betting their prudential capital gives them a durable edge.
What could trip the FCA up?
- Affordability in milliseconds. BNPL is embedded at the point of sale; shoppers will not wait 60 seconds for an open-banking scrape. Lenders must build AI risk engines that clear in two clicks and satisfy auditors.
- Regulatory arbitrage overseas. The EU is watching but not yet copying; Australian and US regulators tinker at the edges. If the UK goes first, providers may geo-fence stricter rules—though network effects argue the opposite.
- Consumer expectations. Surveys show 77% of users knew fees were possible, yet usage keeps climbing. Stricter warnings may dent conversion but not the underlying appetite for split-payments.
The bigger picture: from loophole to blueprint
CP25/23 is more than a domestic clean-up. The paper explicitly references global templates—Australia’s mandatory Confirmation of Payee name-match for instant payments and the EU’s MiCA approach to stablecoins—as proof that tech-led regulation can scale. The FCA wants to export a governance standard before another product category outruns the rule-writers.
In short, London is done playing whack-a-mole with promotional tweets. The question is no longer whether BNPL will be regulated, but how deeply and how soon—and whether the sector’s growth model survives the extra friction. For an industry that pitched itself as credit without regret, the next 14 months will reveal whether its margins were hiding in the fine print all along.