By Ralf Gladis, CEO, Computop
Buy Now Pay Later (BNPL) schemes have become an integral part of the UK’s retail landscape, revolutionising how consumers shop, allowing them to make purchases immediately while spreading the cost over time. Hailed as a convenient alternative to traditional credit, BNPL has grown rapidly in popularity, boosted by the challenges of the cost of living crisis.
Retailers have benefited from offering BNPL schemes at the checkout, supported by Payment Service Providers like Computop, along with all other payment methods. But despite continued growth, the financial risks for consumers, delays in regulatory oversight and a change in direction by some mainstream lenders, means that the narrative around the scheme has become more complex.
Growth of the BNPL market
This is a market that has expanded quickly. According to recent data from Research and Markets, BNPL payments are expected to grow by 15.0% on an annual basis to reach £26.24 billion by the end of this year. Popular platforms like Klarna, Clearpay, and Laybuy have taken the lead, offering easy access to deferred payments for online and in-store purchases ensuring that consumers, particularly millennials and Gen Z, have flocked to these services for their flexibility and ease of use.
While convenience is a major driver, the economic landscape also plays a role. Household budgets are being squeezed and consumers have increasingly turned to BNPL schemes for everything from fashion and electronics to travel and groceries. There is a perception that credit cards come with high interest rates, while most BNPL schemes do not, provided the payments are made on time.
Bank involvement, then withdrawal
While BNPL services were originally dominated by fintechs, over the past couple of years more traditional banks such as Barclays, HSBC, Monzo, NatWest and Deutsche Bank saw an opportunity. Their involvement introduced a sense of credibility and trustworthiness to a market that had, until then, operated with minimal oversight. Banks, which already had systems in place for regulating consumer credit, could ensure better protection and transparency for customers, addressing concerns about irresponsible lending and excessive borrowing.
However, enthusiasm from some of these institutions has been short-lived. In 2023, both NatWest and Goldman Sachs withdrew their BNPL offerings. For NatWest, the decision was seen as a strategic shift towards other areas of consumer lending, while Goldman Sachs pulled out as part of a broader retreat from its consumer finance business. This raised questions about the long-term viability of BNPL schemes in a more regulated environment. While fintech companies have thrived through their BNPL offerings largely due to their agility and low operational costs, the challenges around profitability and compliance combine to make this space significantly more challenging for traditional players.
Regulation is delayed, but necessary
The delay in introducing robust regulatory oversight is a problem. BNPL services operate largely outside the scope of the Financial Conduct Authority (FCA), and therefore offer minimal consumer protection compared to traditional forms of credit. Studies have shown that many consumers are unaware of the risks associated with BNPL, such as late fees and the potential impact on their credit score. According to Citizens Advice, advisers have seen a rise of 76% in people asking for help with BNPL over the previous year, and 82% of cases were looking for assistance with debt repayments.
The UK government and FCA have acknowledged the need for tighter rules. These are expected to bring BNPL under the umbrella of consumer credit regulation, requiring providers to conduct affordability checks and offer clearer terms and conditions to customers. In the EU, the Consumer Credit Directive was adopted in October and applies to BNPL services in certain circumstances. The rules will be implemented into EU law this month and apply by November 2026. In the meantime, there remains a gap in consumer protection that must be urgently addressed.
Balancing convenience with care
On the BNPL horizon are both opportunities and challenges. Consumers will continue to embrace the convenience of deferred payments enabled by retailers, particularly in the e-commerce space. Integration of BNPL services into PayPal and Apple Pay was a green light indicating that they are a standard part of the retail landscape.
However, the sector’s future will be shaped by how it adapts to increasing regulatory scrutiny. When new rules do arrive, providers will be forced to implement stricter lending criteria and greater transparency. While this could protect consumers, it may also reduce the profitability of BNPL services, particularly for smaller fintech companies that rely on fees from late payments to sustain their business models.
For consumers, a better regulated landscape could offer much-needed protection. Affordability checks, clearer repayment terms, and more transparent marketing practices will help ensure that BNPL users are better informed about the risks involved. Stricter regulation may limit access to BNPL for those who rely on it to manage their finances, however, particularly if providers tighten their eligibility criteria.
Looking ahead, we can expect further growth of the market, and despite some banks turning their back on BNPL it will remain a valuable financial tool that other providers are happy to offer. The new UK government has confirmed that it will push ahead with the much needed safeguards without giving any idea as to timelines, but both providers and consumers should begin adapting now to the changing landscape with greater emphasis on responsible lending and financial education. While BNPL has the potential to remain a much loved payment option, its success will ultimately depend on how well it can balance growth with consumer protection.
