UK BNPL regulation: What merchants need to know

Buy Now, Pay Later (BNPL) has become a fixture of the British retail landscape. Once a niche payment option, it is now a mainstream tool for shoppers who want flexibility and for merchants eager to lift sales.

New UK BNPL regulations

But with popularity comes scrutiny, and from 2026 new UK rules will reshape the sector by requiring affordability checks and clearer disclosures.

For many retailers, the immediate question is whether these reforms will make BNPL less effective as a sales driver.

The evidence suggests the answer is no: while the changes will add a layer of oversight, the fundamentals of BNPL—higher basket sizes, improved conversion, and minimal repayment risk for merchants—remain intact.

Why Regulation is Coming

The reforms follow years of concern about consumer over-indebtedness and the absence of consistent oversight in the BNPL market.

The Financial Conduct Authority estimates that around 11 million UK adults used BNPL in the year to May 2024, equivalent to one in five shoppers.

With Klarna alone claiming more than 11 million active UK customers, policymakers have become wary of rising defaults and opaque lending terms.

The new framework will mandate affordability checks for every transaction, even those as low as £50.

The goal is to enforce responsible lending and transparency, moving BNPL away from the self-regulation that has so far prevailed.

Minimal Disruption for Shoppers

For the vast majority of users, these checks are unlikely to create noticeable friction.

Most BNPL customers are repeat users who already underwent affordability assessments when they first signed up.

Klarna’s data indicates that about 70% of its UK customers make repeat purchases within a year, meaning the additional requirements will rarely slow down checkout.

From the consumer’s perspective, the experience will largely remain seamless.

For new users, there may be a few extra seconds of verification, but the trade-off is greater confidence that BNPL providers are lending responsibly.

Merchant Impact: Margins vs Momentum

For merchants, the attraction of BNPL lies in its ability to increase order values and reduce cart abandonment.

By shifting repayment risk to the provider, retailers benefit from immediate settlement while offering shoppers flexibility.

The main risk under the new regime is that the initial affordability check could discourage first-time users, slightly reducing uptake.

Since BNPL providers charge merchants fees in the range of 2–6%, a fall in conversion could make those costs harder to justify.

Yet scale is key: with two-thirds of transactions expected to pass seamlessly, the benefits still outweigh the downsides.

Lessons from Other Markets

International evidence suggests regulation need not be a brake on growth.

Turkey, for example, tightened affordability requirements on credit-based instalments in 2022. Far from stalling, transaction volumes rose from 181 million in 2020 to a projected 326 million by 2024, with values more than doubling.

Brazil, too, has long operated a regulated, card-based BNPL system that remains deeply embedded in retail.

The common thread is that regulation, when integrated into familiar payment infrastructures, enhances consumer trust without undermining convenience.

The Bottom Line for UK Retailers

BNPL is not going away.

Regulation will make the sector safer and more transparent, but it is unlikely to erode the core benefits that merchants value.

Consumers want flexible payments, and retailers want higher sales. For merchants, continuing to offer BNPL will remain a strategic necessity, not an optional add-on.

As the UK heads towards its 2026 regulatory milestone, the most successful retailers will be those that adapt early, partner with providers ready for compliance, and continue to view BNPL as a powerful lever for growth in a competitive retail environment.