Buy now, pay later (BNPL) has become an established fixture across the UK motoring landscape, from garages offering interest-free instalments on repairs and MOT failures, to retailers like Halfords and Euro Car Parts providing deferred payments on tyres, batteries and accessories. With providers such as Payment Assist now key players in this fast-growing space, the sector is set for major change as new FCA rules take effect from mid-2026. Marcus Gregory outlines how tighter checks, enhanced consumer protections and formal oversight will affect workshops, dealers and customers alike, and why readiness now will be crucial for a smooth transition.
Following years of growth, the BNPL market is set to undergo a period of significant change. The UK Government has announced that, as of mid-2026, customers will legally receive the same protections as traditional borrowers, with providers due to come under Financial Conduct Authority (FCA) regulation. Impacting the business models of many current providers, these rules include stricter affordability checks, but also greater safeguarding.
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Rising demand for payment flexibility
FCA data suggests that one-in-five UK adults – almost 11 million Brits – had used a BNPL product to pay for goods or services in the 12 months to May 2024. This was up from two years previously, where that figure was around 17% (approximately 8.8 million people), and experts suggest that demand is only set to further increase.
With the soaring cost of living putting increased pressure on household income, the ability to spread out payments can provide a lifeline for customers, particularly when it comes to larger unexpected expenditure items and services.
This lending has been, in financial terms, widely unregulated. Under current rules, retailers can offer customers the option to spread purchase costs over the course of up to a year, interest-free, without falling under the scope of consumer credit regulation. However, there have been concerns from money advice and debt support groups that consumers are putting themselves unwittingly into unmanageable debt. This is one of the reasons why regulations are changing, with FCA overview due to include the BNPL market too.
What the changes will mean to businesses and customers?
The forthcoming shift is poised to reshape the BNPL landscape in the UK, with the relationship between retailers and customers set to significantly change, essentially broken down into two core elements – increased checks and better protection.
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By GlobalDataUnlike current regulations, improved checks will be required for every BNPL request. Current standard practice is for the customer to detail their income and expenditure, with the service often approved from there. As of next year, that process will change, with companies like Payment Assist carrying out an increased number of checks.
The first change will be a requirement for more detailed information about what the customer is signing up to, encouraging greater thought as to whether they can really afford the product or service. Following that step, there are a number of systems already on the market that use the Open Banking API, allowing lenders simplified access to a customer’s financial information. This will influence approval, confirming affordability and sustainability of the terms, and ensuring that the FCA regulations are adhered to.
The importance from a business perspective is to adhere to these new regulations, without detrimentally impacting the application process. Currently, the process takes just a few minutes, with an instant decision allowing for quick delivery at point of sale. Those customer expectations will continue, but with far greater work going on behind the scenes after the press of a button, looking up financial information to make an informed lending decision, all while the customer looks for an ‘immediate’ decision.
The benefits for both customers and businesses revolve around affordability. With increased checks on a customer’s finances, they are less likely to be approved for BNPL lending when they can’t, or will struggle, to afford it. In this case, there is expected to be a greater number of applications that are turned down. Ultimately it means that the customer is less likely to get into unmanageable debt, while businesses should experience fewer customers struggling to make repayments.
But, if anything, it is after the point of purchase that the regulation changes come into greater effect. With FCA regulation, customers are supported by additional layers of protection. If a regulated customer makes a complaint, and they are not happy with the outcome, they then have the chance to escalate the issue to the financial ombudsman for an independent adjudication.
Finally, firms will contact the customer if they miss a repayment, explaining what they owe and what the consequences are of missing further repayments. If the customer is struggling financially, then they can direct them to free debt advice services for assistance.
Will regulation changes impact all businesses?
For some BNPL providers, the incoming regulations are going to require wholesale changes. Many will need to obtain a consumer credit licence, required to meet FCA regulated lending rules, and while this is far from impossible, it takes time, but more importantly, the correct approach.
For the likes of Payment Assist, there will be some changes behind the scenes, but since we are already regulated, it simply means that the regulatory requirements are met for previously unregulated products.
Although the changes are going to see limited scope compared to normal consumer credit, the indication is that distributors, suppliers, and merchants offering BNPL will not have to obtain a consumer credit licence – there are simply too many of them to make it feasible. So, instead, the changes will be implemented by those operating at a higher level in the commercial chain; the financial providers themselves. The responsibility lies with the lender, as they must ensure that the customer gets the best possible outcome at all times.
In part, the changes are beneficial, bringing about an opportunity to reinforce customer service values. To lend responsibly, it’s not just a tick-box exercise. The ethos of the company needs to be aligned, with the customer at the core of the process, and an understanding of how the industry operates.
Going forward
During this period of change and increased regulatory pressure, the BNPL industry will need to embrace transformation. Presenting both challenges and opportunities, the sector will need to blend strict FCA oversight and traditional banking practices with the agility BNPL offers.
Those that successfully navigate this changeover period will likely evolve their offerings beyond simple credit agreements. The likelihood is that more comprehensive financial products and packages will be available, maximising technological developments with ease-of-use systems that make lenders more competitive. It could even see BNPL providers competing with established high-street banks, not just on credit offerings, but across a broader spectrum of financial services.
Those businesses that can integrate regulatory financial compliance with innovative solutions will not just survive, but be part of a new consumer financial landscape in the UK.
