FCA brings £13bn buy now, pay later market under regulation

Buy now, pay later providers have come under Financial Conduct Authority supervision as new affordability, disclosure and consumer-support rules take effect across a market worth more than £13bn annually.

From 15 July, affected lenders must be authorised by the FCA and comply with the Consumer Duty. Providers must give borrowers clearer information about payment dates and missed-payment consequences, undertake proportionate affordability checks and support customers experiencing financial difficulty.

Consumers can also take eligible complaints to the Financial Ombudsman Service. The rules apply to previously unregulated deferred-payment credit agreements, while retailers offering their own credit remain outside the new framework.

The FCA estimates that the market increased from £60m in 2017 to more than £13bn in 2024. About 10.9m adults, equivalent to one-fifth of UK consumers, used buy now, pay later during the 12 months covered by its 2024 Financial Lives Survey.

The regulation changes the operating model for fintechs and other providers that have built their businesses around rapid credit decisions at the point of sale. Affordability assessments, complaints handling and regulatory reporting will add compliance costs, while potentially strengthening confidence in the sector.

Buy now, pay later is primarily a consumer-credit product rather than conventional supply chain finance. It nevertheless affects merchant settlement and working capital because providers generally pay retailers before collecting instalments from customers. The product therefore transfers part of the timing and credit risk away from the merchant in exchange for a fee.

Firms that entered the temporary permissions regime have six months from the rules taking effect to submit applications for full authorisation. Providers will also need to demonstrate that their systems, governance and customer-treatment processes meet FCA requirements.

The new regime could favour larger operators with the resources to absorb compliance costs, although formal regulation may also make it easier for banks and institutional funding partners to work with established providers.

Its impact will become clearer as the FCA assesses authorisation applications and firms adjust underwriting models to incorporate the new affordability requirements.