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Insights and Expertise

Why UK merchants will Yet, while these changes are significant, they're unlikely
to cause major disruption to the BNPL landscape. One
continue to offer BNPL key reason is that many BNPL customers are already ac-
customed to the process. Most users have previously un-
dergone affordability assessments when opening their
post-regulation accounts, meaning the additional checks are unlikely to
create noticeable friction.

The Financial Conduct Authority (FCA) estimates that
around 11 million UK adults (see http://bit.ly/3IBhUsk) used
BNPL services in the year leading up to May 2024, roughly
one in five shoppers.

Klarna alone has more than 11 million active UK customers
(see http://bit.ly/3KsfBbK) with around 70 percent making
repeat purchases within a year (see http://bit.ly/42NrwXI).
For these frequent users, the required checks have already
been completed, ensuring minimal impact on their buying
experience.

Minor friction, major rewards
For retailers, the appeal of BNPL has always been clear:
higher average order values, stronger conversion rates and
a smoother checkout experience that keeps cart abandon-
ment low. On top of that, repayment risk typically sits with
By Stephanie Storry the BNPL provider rather than the merchant, making it a
PSE Consulting low-risk, high-reward offering.

uy now, pay later (BNPL) has rapidly cement- However, the introduction of mandatory affordability
ed its place in the UK retail landscape, fueled checks could introduce small bumps in the road. Verify-
by consumers' growing appetite for flexible ing new customers may slightly slow the checkout pro-
B payment solutions. The appeal is clear: an easy, cess, which could reduce BNPL adoption. And if conver-
convenient way to spread costs over manageable install- sion rates dip, the 2 to 6 percent processing fees charged
ments. by BNPL providers could become harder to justify.

However, this surge in popularity has also drawn increas- Even so, BNPL's value for merchants remains compelling.
ing regulatory scrutiny, with rising concerns around con- The vast majority of transactions (more than two-thirds)
sumer protection and default rates. From 2026, new rules are expected to pass through without any disruption. For
will require BNPL providers to conduct mandatory af- most customers, the experience will stay quick and seam-
fordability checks and deliver greater transparency for less, meaning the uplift in order values and conversions
shoppers (see http://bit.ly/4nVwhGH). should far outweigh the minimal friction introduced. In
short, the benefits still heavily outweigh the risks.
That said, these changes are unlikely to derail BNPL's
momentum. For merchants, continuing to offer BNPL re- BNPL thrives under scrutiny
mains an easy decision. Even under tighter regulation,
the advantages, from boosting order values and improv- Turkey provides a compelling case study of how BNPL
ing conversion rates to shifting repayment risk, make it a can flourish under tighter regulatory scrutiny. In 2022,
powerful tool for driving growth. Turkish regulators introduced stricter affordability checks
for credit-based installment payments, including catego-
Regulation, not restriction
The UK's upcoming BNPL regulations will introduce man-
datory affordability checks for all customers, even those Smart regulation doesn’t have to
borrowing as little as £50. This marks a shift away from hinder growth. When BNPL is
the largely self-regulated framework that has defined the
BNPL market so far, signaling heightened concern over integrated into trusted payment
rising debt levels and consumer protection. The reforms systems and designed for repeat use,
aim to improve transparency, encourage responsible lend-
ing, and safeguard financial well-being. it can continue to thrive.

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