The Financial Conduct Authority (FCA) now regulates Buy Now, Pay Later (BNPL) as Deferred Payment Credit (DPC) the interest-free instalment products millions of UK shoppers use every day. To clarify, FCA BNPL regulation only applies to DPC offered by third-party lenders. If a retailer offers their own BNPL credit, then the agreement will remain unregulated.
On paper, it is a straightforward correction to an obvious regulatory anomaly given the age of the Consumer Credit Act. In practice, it is a test of whether the FCA can regulate a fast-moving financial product without either allowing preventable harm or burying a useful form of short-term “free” credit beneath rules designed for more traditional lending agreements.
The distinction matters. BNPL did not become popular because consumers suddenly developed an appetite for borrowing more; it succeeded because it made borrowing feel almost invisible. At the checkout, a purchase could be divided into manageable payments with a few taps without any additional cost. The problem is that convenience can also obscure risk.
THE FIRST PRINCIPLE OF DPC REGULATION: REGULATE THE RISK, NOT THE TECHNOLOGY.
The strongest case for regulation is not that BNPL is inherently bad. It is that the digital presentation of credit can change how consumers perceive it. A £400 purchase split into four payments can feel very different from being told, in conventional credit language, that one is taking on £400 of debt.
Under Consumer Duty, firms should ask “is the product designed to help consumers understand the financial commitment they are making?”
A consumer should be able to understand, before clicking “buy”, how much they owe, when payments will be taken, what happens if they miss one, how taking this commitment could interact with other borrowing, and whether the agreement is a regulated DPC agreement.
THE SECOND PRINCIPLE: BNPL AFFORDABILITY CHECKS CANNOT BECOME A BOX-TICKING EXERCISE
One BNPL agreement may be perfectly manageable. Five simultaneous agreements, taken across different retailers and providers in short succession, may be something else entirely.
That makes the affordability assessment one of the most important elements of the new regime. The FCA’s final rules on DPC (PS26/1) set out affordability assessments for BNPL borrowers, with a broader approach intended to provide protection without making the product inaccessible.
The challenge is getting that balance right: protection that’s dynamic and proportionate.
Providers are expected to look at a customer’s existing commitments, patterns of missed payments and signs of financial vulnerability, while recognising that affordability is not static. Excessive or continuous use of BNPL can be a sign of debt spiralling, as can a mismatch between what a customer is using the product for and what it was designed for.
THE THIRD PRINCIPLE: THE CHECKOUT IS PART OF THE CREDIT DECISION.
Another area firms and the FCA will need to focus on is marketing within the sales process.
BNPL is unusual because the borrowing decision for the credit product often happens in the middle of a commercial transaction. A consumer is not necessarily sitting down intending to take out credit. They may simply be trying to buy shoes, a television or a holiday, but how BNPL is introduced responsibly at this stage is important. It essentially makes the checkout itself part of the financial decision-making environment.
If BNPL is presented more prominently than paying in full, if the instalment amount is made visually dominant while the total price fades into the background, or if borrowing is framed as a painless payment method rather than credit, consumer choice can be subtly shaped.
There is also a moral high ground to consider in shaping the product under Consumer Duty and defining the target market and purpose of the borrowing. Lenders should ask themselves whether their BNPL product is morally suitable for certain types of shopping. Should lenders allow customers to spread the cost of essential items such as their weekly food shop? Is this a clear indicator of debt spiralling? How should lenders identify this type of transaction as opposed to a one-off larger purchase of non-essential items from a supermarket?
PROTECTION MUST EXIST WHEN THINGS GO WRONG.
Good outcomes are rarely measured by what happens when everything goes according to plan, but by what happens when it does not. Consumers miss payments. Circumstances change. Goods are returned.
Consumer groups have reported growing demand for help with BNPL problems. Citizens Advice says it helped 7,468 people with a BNPL issue in 2025, 35% more than in 2024, with debt repayment the main issue among clients seeking help.
These figures don’t suggest that BNPL causes widespread financial distress for any more consumers than other forms of credit. But they do demonstrate why access to effective support and potentially to redress matters. Firms must make it easy for a struggling borrower to get help before a missed payment becomes a cascade of problems.
THE REAL TEST FOR FCA BNPL REGULATION WILL BE WHAT HAPPENS NEXT.
The arrival of FCA regulation is therefore not the end of the BNPL debate. It is the beginning of the more difficult phase.
The FCA will be keen to see the data: missed payments, repeat borrowing, complaints, financial distress, access to credit and outcomes for vulnerable customers.
For lenders providing this product, the key questions to answer would include:
- Are consumers better able to understand what they are borrowing?
- Are firms identifying people who cannot afford the repayments?
- Are customers treated fairly when circumstances change?
- Are complaints resolved effectively?
If the answer to those questions is yes, then firms will be in pretty good space as long as they have evidence to support this. Firms entering into regulation for the first time in this sector will inevitably have steep learning curves around how the FCA operates as a regulator and how they expect authorised firms to act in order to meet their regulatory standards at authorisation and how they will continue to meet these standards post authorisation.
WHERE WE CAN HELP WITH DPC AUTHORISATION.
At Cosegic, we support firms through the authorisation process and beyond. Whether it’s training, assistance with regulatory reporting, general or undertaking assurance and monitoring activity, Cosegic has over 20 years’ experience supporting firms across multiple sectors of FCA-regulated activities.
