Only a few years ago, Buy Now, Pay Later (BNPL) was heralded as a major disruptor of retail payments. Today, 68% of Europeans use payment in instalments and/or deferred payment. Meanwhile in the UK, holiday shoppers are set to spend £3.8billion with BNPL this Christmas.
But this freewheeling era may be coming to an end. In 2026, regulatory changes will come into force, bringing BNPL under increased scrutiny and control.
The BNPL grey zone is ending
Fast and convenient, BNPL has grown up outside the usual rules of consumer credit. But as usage has surged, so have concerns around debt, transparency and the ease of taking on too many instalments at once.
That’s why regulators are now stepping in to ensure shoppers have a better sense of cost, risk and repayment expectations.
What’s changing?
In the UK, from 15 July 2026, BNPL providers will fall under full Financial Conduct Authority oversight. Affordability assessments, clearer repayment information, support for missed payments, and the right to escalate complaints to the Ombudsman will all become standard.
In addition, as of November 2025 BNPL is formally defined as credit under the EU Second Consumer Credit Directive (CCD2). Member states have transposed it into their national laws, with full implementation expected by November 2026. This will bring mandatory affordability checks, caps on interest and fees, tighter APR rules, and connections to national credit databases.
Where the UK focuses on how BNPL is managed, CCD2 adds pricing constraints and national rules. Lower late fees, APR caps and stricter creditworthiness checks will reshape how providers price their services.
New regulation targets BNPL providers but retailers will feel the ripple effects
For providers operating across multiple countries, the result of these changes is a more complex, more expensive compliance landscape.
For merchants, these changes could feed into merchant fees or minimum spend thresholds. Furthermore checkout flows may need updating, with clearer disclosures about fees, repayment terms and credit implications. Staff may need new training, especially for in-store purchases where customers ask questions on the spot.
New users may also experience slower approval journeys, particularly if they require full affordability checks. While most returning customers will still breeze through, even small delays could affect conversion during peak trading moments.
Regulation also introduces shared responsibilities. In the UK, under Section 75, merchants may carry joint liability for certain disputes, while Consumer Duty obligations require better communication and customer care. Refunds, disputes and chargeback processes will all come under sharper scrutiny.
Should merchants be worried?
BNPL has always delivered strong value: higher order values, better conversion and no repayment risk for merchants. Even with new checks in place, most customers will continue to be approved instantly, especially those who already have BNPL accounts.
Providers are also raising their game. Cashback rewards, loyalty integrations and longer interest-free instalment periods are helping keep demand high.
In many markets where BNPL is already regulated, adoption has continued to grow showing that tighter rules don’t necessarily kill BNPL but can help build the trust that’s needed to mature it.
Keeping options open and managing change
As formal oversight arrives, the BNPL sector is set to become more stable, trusted and long-term in its role at the checkout. Demand is rising, incentives are growing and approvals will remain fast for most shoppers. For merchants, split and deferred payments will remain an important part of the checkout mix. BNPL will simply require more structure and oversight than before.
At Castles Technology, we help merchants navigate exactly this kind of industry shift. From next generation Android POS and unattended acceptance devices to software, terminal management and support services, we provide the innovative tools and in-depth expertise you need to optimise retail payments and stay ahead of market and legislative change.
Learn more about our payment solutions here: https://www.castlestech.com/
