Buy Now Pay Later regulation: what businesses need to know

What counts as Deferred Payment Credit

The FCA uses the term "Deferred Payment Credit" (DPC) rather than "Buy Now Pay Later" because the regulation captures a wider range of products than the phrase BNPL might suggest. DPC is defined as credit that meets all of the following conditions:

• It is provided under an arrangement between the lender and the supplier of goods or services
• The borrower is not required to pay interest or any other charge for the credit
• The credit is repayable in instalments or as a single deferred payment

This captures the major BNPL models: "pay in 3" or "pay in 4" instalment products, "pay later in 30 days" products, and interest-free instalment plans offered at checkout through a third-party provider. It does not capture credit arrangements made directly between a retailer and a customer without a third-party lender involved (these may be covered by existing credit broking or lending exemptions).

What the regulation does not cover

Certain arrangements remain outside the DPC definition:

• Invoicing terms: Standard 30-day trade credit between businesses, or business-to-consumer invoicing where no third-party lender is involved
• Existing regulated credit: Interest-bearing instalment plans are already regulated as consumer credit agreements
• Charge cards: Products where the full balance must be repaid each month remain subject to existing rules

Who needs to act

Two distinct groups of businesses are affected by BNPL regulation, with different obligations for each.

BNPL providers (lenders)

If you provide the credit - that is, you advance funds to the merchant and collect repayments from the consumer - you are a DPC lender. You will need full FCA authorisation for consumer credit lending. This brings you within the scope of the FCA's Consumer Credit sourcebook (CONC) and Consumer Duty requirements.

Key obligations for providers:

• FCA authorisation (via the temporary permissions regime or a full application)
• Affordability assessments before extending credit (proportionate to the amount and risk)
• Pre-contract information: a modified Standard European Consumer Credit Information (SECCI) form
• 14-day right of withdrawal for consumers
• Financial Ombudsman Service (FOS) access for consumers
• Financial promotions compliance for all advertising and marketing
• Complaints handling procedures meeting FCA standards
• Consumer Duty: delivering good outcomes across all four outcomes

Merchant obligations: credit broking

If you are a retailer, marketplace, or service provider that offers BNPL at checkout, you are introducing your customers to a credit product. Under FCA rules, this makes you a credit broker. From 15 July 2026, you will need FCA permission for credit broking activity.

This is the aspect of BNPL regulation that catches many businesses by surprise. A fashion retailer offering "pay in 3" through Klarna, a travel company offering "spread the cost" through a BNPL provider, or an online marketplace integrating BNPL at checkout are all carrying on credit broking activity.

What merchants must do

The level of FCA permission you need depends on the nature of your activity. Most merchants offering BNPL at checkout will need limited permission for credit broking, which has a simpler application process and lower fees than full permission. However, if you actively promote particular BNPL products, compare BNPL providers, or receive commission for each BNPL transaction, you may need full permission.

Regardless of permission type, merchants must:

• Make an initial disclosure to customers stating that you are acting as a credit broker
• Disclose any fees you charge and any commission you receive from the BNPL provider
• Ensure that your promotion of BNPL products complies with FCA financial promotions rules
• Not pressure customers into using BNPL when it may not be in their interest

Section 75 does not apply to Deferred Payment Credit

One of the most significant aspects of the BNPL regulatory framework is the Government's decision that Section 75 connected lender liability will not apply to DPC agreements. Under Section 75 of the Consumer Credit Act 1974, credit card issuers are jointly and severally liable with the supplier for misrepresentation and breach of contract on purchases between GBP 100 and GBP 30,000.

The Government concluded that applying Section 75 to BNPL would be disproportionate given the typically lower transaction values and the interest-free nature of the credit. Instead, consumers will be able to take complaints about DPC products to the Financial Ombudsman Service, which can make awards of up to GBP 430,000.

For BNPL providers, this means you do not face the same connected lender liability risk as credit card issuers. For consumers, it means their primary route for redress on BNPL-funded purchases where the supplier has failed will be through the FOS rather than a Section 75 claim against the BNPL provider.

Timeline and the temporary permissions regime

The FCA has established a temporary permissions regime (TPR) to allow existing BNPL providers and merchants to continue operating while they complete the full FCA authorisation process. This avoids a cliff-edge where all BNPL activity would need to cease on 15 July 2026.

Key dates:

• May 2026: Temporary permissions regime registration window opens
• 15 July 2026: DPC regulation comes into force; existing providers must have registered for TPR or cease DPC activity
• Post-July 2026: Firms in the TPR must submit full authorisation applications within the window specified by the FCA (expected to be 12 months)

How the temporary permissions regime works

If you are already providing DPC products before 15 July 2026, you can register for the temporary permissions regime. Registration allows you to continue operating under temporary permission while you prepare and submit your full FCA authorisation application.

The TPR is not a lighter-touch regime. Once you are in the TPR, you must comply with the FCA's CONC rules, Consumer Duty requirements, and financial promotions rules from day one. The TPR simply gives you time to complete the formal authorisation process without having to cease trading.

If you are a new BNPL provider that has not been offering DPC products before 15 July 2026, the TPR is not available to you. You must obtain full FCA authorisation before you can begin offering DPC products.

Strategic considerations for your business

BNPL regulation represents a fundamental shift in the economics and competitive landscape of deferred payment products. Businesses need to think beyond bare compliance to consider the strategic implications.

For BNPL providers:

• Cost of compliance: FCA authorisation, ongoing fees, compliance infrastructure, and regulatory reporting represent material new costs. Smaller BNPL providers may find the unit economics challenging.
• Affordability requirements: The obligation to assess affordability, even proportionately, will slow down the checkout process. This is likely to reduce conversion rates, which has been a key selling point for BNPL.
• Market consolidation: Regulatory costs are expected to drive consolidation in the BNPL market, favouring larger providers with existing FCA authorisations or the resources to obtain them.
• Product design: Some providers may need to redesign products to comply with pre-contract information and right-of-withdrawal requirements.

For merchants:

• Credit broking permission: The requirement for FCA credit broking permission is an additional compliance burden and cost. Some smaller merchants may decide BNPL is no longer worth offering.
• Promotional restrictions: Financial promotions rules will constrain how you can market BNPL at checkout. Prompts such as "pay nothing today" may need to be accompanied by risk warnings.
• Provider relationships: Review your agreements with BNPL providers to ensure they allocate regulatory responsibilities clearly.