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From next year, Buy-Now, Pay-Later (BNPL) firms will need to work within a stricter regulatory framework. Following last year’s consultation, the government has now laid legislation before Parliament to bring BNPL under formal regulation, aiming to end what’s been called the “wild west” of unregulated borrowing.

BNPL refers to a type of interest-free instalment credit that allows the borrower to split their purchase cost into regular repayments within a 12-month period and in 12 or fewer instalments.

This type of credit is currently unregulated, which means the businesses offering them are not overseen by the Financial Conduct Authority (FCA), nor do they have to comply with the Consumer Credit Act 1974’s requirements. Klarna, Clearpay and Paypal Pay in 3 are examples of third-party providers that many businesses partner with to provide a BNPL option at checkout to their online customers.

What’s changing?

BNPL has grown rapidly in recent years, with millions now using it as a way to spread the cost of purchases. But concerns have grown around affordability, lack of clear terms, and delays in processing refunds. The new rules aim to change that by:

· Requiring affordability checks before people can borrow

· Ensuring clearer information upfront about what customers are signing up to

· Providing fairer and faster access to refunds

· Giving customers the right to complain to the Financial Ombudsman, as with other credit products

At the same time, the government is reforming the outdated Consumer Credit Act to remove outdated and confusing rules, with oversight of all credit types covered by the Act shifting to the Financial Conduct Authority (FCA). This move is expected to reduce red tape while strengthening consumer protections.

What does this mean for your business?

If your business uses a third-party BNPL provider, these changes will likely affect how those services are delivered and what your customers experience at checkout. Here’s what to be aware of:

· Process changes at checkout – Third-party BNPL providers will need to carry out affordability checks before approving purchases. This could slightly affect the speed or flow of the checkout process, particularly for new users.

· Customer communication – Your customers will receive more detailed information about repayment terms and their rights before they complete a purchase. It will be worth making sure any information you include on your website outside of the checkout areas maintained by your BNPL provider is consistent, so that there are no surprises or confusion.

· Refunds and returns – The new rules aim to make refunds faster and fairer for customers using BNPL. You may need to work closely with your BNPL provider to ensure your return and refund policies support this.

· Complaint handling – Customers will now be able to escalate complaints about BNPL services to the Financial Ombudsman. While the BNPL provider will take the lead, good customer service from your side can help avoid issues being pushed further.

Overall, these changes aim to build trust in BNPL – and that could benefit businesses that use it as a flexible payment option to drive sales. Now is a good time to review how your BNPL partner operates and whether any changes are needed to keep up with the new rules.

See: https://www.gov.uk/government/news/new-rules-to-end-buy-now-pay-later-wild-west-protect-millions-of-shoppers-and-drive-growth