BNPL regulation & impact on merchants – UK and global developments

Regulation of Buy Now, Pay Later (BNPL) payment schemes and companies has been a long time coming. From BNPL fraud affecting both customers and merchants, to guardrails preventing money laundering and protecting consumers, governments have been signalling their intention to regulate BNPL providers as early as 2020.

Today, the UK, EU and the rest of the world are preparing to enforce regulatory changes to this booming sector. It's a timely moment to revisit the numbers, the risks, and what lies ahead.

Importantly, we’ll focus on what that means for merchants who accept BNPL payments.

A market on the rise – and under pressure

It is no longer early days for the payment method that seeks to provide short-term interest-free lending. Over 100 BNPL providers are operational around the world and more than 670 million consumers are expected to adopt it by 2028.

The frictionless nature of BNPL has not only driven consumer adoption but also opened the door to widespread abuse. With minimal onboarding, soft credit checks, and near-instant approvals, BNPL services have become fertile ground for opportunistic fraud, account takeovers, and refund exploitation.

According to Bankrate, 30% of Americans have already used a BNPL service – with 49% experiencing issues with it, including overspending, missing payments and regretting purchases. Counterbalancing the convenience of these services, 41% of users were found to be late with payments last year, per LendingTree.

Meanwhile, there’s an ever-growing trend of BNPL fraud, which includes:

• synthetic identities mass-generated by fraudsters with the help of AI

• fake accounts

• account takeover (ATO)

• unauthorized use of stolen cards

• money laundering

Fraudsters are attracted to the low friction, quick onboarding, and lack of comprehensive identity checks. The estimated loss to merchants and providers is climbing rapidly.

From a business standpoint, the industry is massive and expanding, projected to grow to over $167 billion by 2032.

But growth without guardrails risks long-term sustainability. Enter legislators.

A turning point for BNPL: Toward regulation, responsibility and resilience

In most countries around the world, including the UK and EU, recent and ongoing regulatory efforts have emphasized consumer protection, transparency, and BNPL provider accountability.

BNPL providers are asked to implement a variety of measures that include creditworthiness assessments, increased transparency and disclosure, ethical marketing, and support mechanisms including self-exclusion – all aimed at reducing the risk of over-debtedness for consumers.

Developments in BNPL legislation in the UK

Since 2021, the UK government has taken significant steps to introduce regulation into what it has called the "BNPL wild west". A multi-agency approach is underway, with oversight expected to be handed to the Financial Conduct Authority (FCA) by mid-2026. The core goals? To protect consumers, reduce systemic risk, and promote responsible lending.

In the eyes of the UK legislators, BNPL companies are seen as enabling Deferred Payment Credit (DPC) agreements. Key elements of the upcoming UK legislation include:

• Mandatory affordability checks: BNPL providers will be required to conduct proper affordability and creditworthiness checks before extending credit.

• FCA oversight: The FCA will regulate BNPL lenders, giving consumers recourse through the Financial Ombudsman Service and protections under the Consumer Credit Act.

• Credit reporting: BNPL providers will have to share data with credit reference agencies such as TransUnion and Experian, so that BNPL impacts are reflected in consumer credit files.

• Clearer disclosure: Customers must receive transparent info about repayment terms, interest (if any), and rights to redress. Financial promotions will also need to be approved by an FCA-authorized firm.

The countdown to BNPL regulation has already started. Currently, as of June 2025, the FCA is preparing consultation on the proposed rules, which will be finalized and then implemented.

EU updates to the Consumer Credit Directive

Meanwhile, the European Commission introduced a proposal to update the Consumer Credit Directive in June 2021 aiming to expand its scope to include BNPL and other currently unregulated consumer credit services. The revisions will mandate broader use of credit checks and affordability assessments to help prevent vulnerable consumers from falling into unsustainable debt.

The Consumer Credit Directive II (CCD II) is set to be fully transposed into national laws by the end of 2025, with full enforcement expected by Q4 2026. Similarly to the UK, it will introduce tighter controls on lending costs and interest rates, requiring European retailers offering BNPL options to ensure compliance and reassess their operating models.

One major shift is that the current exemption for short-term, interest-free BNPL products (repayable within three months with only minor charges) has been removed. Instead, a narrower exemption now applies, but only to direct-to-consumer BNPL provided by retailers or service providers, not third-party BNPL providers.

To qualify for the exemption:

• Deferred payments must be completely free of charge

• Late fees must be limited to what is allowed under national law

• Repayment deadlines are tightened to:

  • 50 days (general)

  • 14 days for non-SME retailers selling online

BNPL in the USA: Misalignment and backtracking

In the United States, regulatory action was expected to come from the Consumer Financial Protection Bureau (CFPB). In a July 2021 blog post, the agency cautioned consumers against the risks of overspending, even when using interest-free installment plans.

Then, in May 2024, the CFPB issued an interpretive rule clarifying that certain BNPL products must comply with aspects of Regulation Z under the Truth in Lending Act. However, the 2024 BNPL interpretive rule is no longer in effect, following a May 12, 2025 withdrawal. On June 20, 2025, the CFPB confirmed it will not issue a revised BNPL rule, calling the interpretive rule “procedurally defective” and “misaligned with the nature of BNPL”. The announcement also emphasized that such loans – typically structured as closed-end – were not suitable for credit card regulations.

However, individual US states are beginning to step in to address gaps in BNPL regulation, which we are likely to see more of – albeit influenced by political affiliations. For instance, New York has adopted its own approach. Governor Kathy Hochul recently signed a law introducing licensing requirements for BNPL providers and setting new restrictions on the design and terms of these products.

BNPL legislatory developments in APAC

Despite being among the first to flag the risks associated with BNPL, Australian regulators took a slower path toward formal regulation, starting with the Australian Securities and Investments Commission (ASIC) warning against unaffordable debt and encouraging the industry to self-regulate.

But legislation eventually arrived: The Treasury Laws Amendment Bill 2024: Buy Now, Pay Later became fully operational on June 10, 2025. It extends the Credit Act and Credit Code to cover Low Cost Credit Contracts (LCCCs), explicitly classifying BNPL arrangements under this new category as a form of credit – as contracts where credit is, or may be, provided under the contract and certain conditions are satisfied.

While BNPL providers will be required to hold a credit licence and conduct credit assessments, the Australian regulatory approach is tailored to BNPL’s relatively lower risk and cost compared to traditional credit.

In Singapore, the Monetary Authority has been busy with efforts to regulate BNPL since October 2021. Initially released one year later, the BNPL Code of Conduct came into effect in November 2023. New and existing BNPL providers are required to comply with its guidelines and obtain official accreditation, with a focus on consumer protection including on transparency, ethics and support mechanisms for consumers.

Meanwhile, in China, BNPL services provided by Ant Group and Tencent Holdings have come under increased scrutiny as part of the government’s broader crackdown on online lending to younger consumers, which has significantly slowed BNPL expansion in the region.

For merchants: BNPL regulation effects on conversion rates and customer journeys

The introduction of mandatory affordability checks and increased transparency may initially lead to a slight decline in conversion rates at checkout, as the process becomes more rigorous.

For merchants, the main benefits of accepting BNPL are:

• More purchasing power for consumers, which leads to more conversions

• More payment options, providing convenience to a wider range of consumers

• Less friction at checkout for those with established BNPL accounts

Despite the tighter regulation of BNPL vendors, these benefits to merchants who accept such methods of payment remain.

For example, retailers might experience higher cart abandonment rates due to the added steps in the buying journey that are associated with setting up a new BNPL account. However, the reduced friction afforded to consumers that have an existing account is still a major draw.

The increased legislative pressure could also change the way BNPLs operate as intermediaries and how they conduct business with merchants and banks.

If such changes come, assess on a case-by-case basis whether it’s worth continuing to accept that method. You might want to consider diversifying your accepted payment methods further, to include more than one BNPL or alternative options. This is likely to be further appreciated by consumers.

Keep in mind that in the UK, the new regulations apply only to third-party BNPL providers. Direct-to-merchant installment options remain outside the scope of the new legislation – though you will need to confirm this with a local expert for countries outside the UK.

Long-term benefits of BNPL regulation

In the long term, these measures are expected to build greater trust in BNPL services. As consumers become more confident in the safety and fairness of BNPL options, adoption rates may stabilize and even grow.

Retailers that adapt to these changes by streamlining the checkout process and clearly communicating the benefits and responsibilities of BNPL can maintain, or even enhance, customer loyalty and conversion rates over time.

Reflection: A necessary shift toward sustainable growth

The rise of BNPL has reshaped how consumers shop, budget, and access credit. Its appeal lies in its simplicity and flexibility but that same simplicity has also enabled financial missteps, regulatory blind spots, and fraud.

These regulatory steps may result in an initial dip in conversion rates and an increase in abandoned carts that may feel like a step back – especially for merchants focused on conversions. But in the long term, introducing checks, transparency, and credit reporting, they lay the groundwork for BNPL to become a more trusted and sustainable credit tool. BNPL providers will have the chance to evolve from growth-first platforms to trusted, regulated credit providers.

It’s a welcome shift. With better credit visibility, protections against fraud, and stricter onboarding, the UK market can help lead the way in responsible innovation.

Do you want to accept more payments with confidence?

Book a call with the Ravelin team to learn how we can power your sustainable growth.

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• Video: The evolution of payments with Ravelin and Checkout.com
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