For retailers and consumers, it is easy to see the appeal of Buy Now Pay Later (BNPL) offerings; customers get flexibility, baskets feel more affordable, and higher-value purchases become that bit easier to justify. But however seamless it looks on the customer journey, BNPL is still credit and with the UK regulatory framework now catching up, retailers need to think beyond conversion rates and start looking closely at the legal, operational and reputational risks sitting behind the “pay later” promise.
From 15 July 2026, certain BNPL arrangements are now regulated by the Financial Conduct Authority as Deferred Payment Credit (DPC). In broad terms, this captures short-term, interest-free credit, repayable in 12 or fewer instalments over 12 months or less, offered to consumers at checkout where the credit is provided by a third-party lender, rather than by the retailer itself. The regulated activity is therefore the provision of credit to the customer under that BNPL arrangement. The party that needs to be authorised, or have temporary permission, is the DPC lender i.e. the provider offering the credit.
This does not mean every retailer suddenly becomes FCA-regulated simply because it offers Klarna, Clearpay or another BNPL option at checkout. The legislation includes an exemption from credit broking regulation for most merchants referring customers to third-party BNPL providers, such as e-commerce sites offering a third-party BNPL payment option. However, the legal analysis should not stop there. Even where the regulatory obligations sit primarily with the lender, the retailer’s customer journey, checkout messaging, returns handling, complaint processes and contractual arrangements with the BNPL provider can all create legal, operational and reputational exposure.
1. BNPL is a form of credit, not just “another payment method”
A common commercial mistake is to treat BNPL in the same bucket as Apple Pay, PayPal or card payments. That is risky. BNPL changes the nature of the checkout experience because the consumer is not simply paying by a different mechanism, they are entering into a credit arrangement.
That matters for brands because the sales journey should not oversimplify, trivialise or obscure the fact that a customer is taking on credit. Marketing copy that presents BNPL as a frictionless lifestyle choice (e.g. “treat yourself”, “no worries”, “split it and forget it”) may look commercially attractive, but it can sit uncomfortably with the regulatory direction of travel being clear information, informed decision-making, affordability and good customer outcomes.
2. Check your BNPL provider is actually allowed to operate as a DPC
The first practical point for retailers is provider due diligence. The FCA says that DPC lenders entering into DPC agreements from 15 July 2026 must be authorised for the relevant consumer credit activities or have temporary permission under the DPC temporary permissions regime. It also states that a firm without the relevant consumer credit permissions or temporary permission cannot enter into new DPC agreements.
For retailers and brands, this should be built into onboarding and ongoing supplier management. It is not enough to assume that a well-known BNPL provider is compliant. Commercial teams should ask for confirmation of authorisation or temporary permission, check the FCA register where appropriate, and ensure the services agreement contains suitable warranties, compliance undertakings, audit/co-operation rights and termination rights if the provider loses permissions or becomes subject to regulatory action.
The contractual point is important. If the BNPL provider fails, the customer may not distinguish between “the lender” and “the brand”. They will remember the checkout, the failed purchase, the refund delay or the collections experience. That makes BNPL provider compliance not just a financial services issue, but potentially a brand protection issue.
3. Checkout disclosures: clear, timely and not buried
One of the FCA’s stated aims is that DPC lenders give consumers information that helps them make effective, timely and informed decisions before entering into a DPC agreement and throughout its duration. The FCA also says lenders should lend responsibly and affordably and support customers facing financial difficulty.
Retailers may not be responsible for producing regulated credit disclosures where those obligations sit with the lender, but they do control much of the consumer interface. That means brands should review where BNPL is presented in the website journey for example product pages, basket pages, checkout pages, promotional banners, email campaigns, influencer content and social advertising.
From my (a commercial solicitor’s) perspective, this is where consumer law, advertising law and financial services regulation overlap. Even if the lender owns the regulated disclosure wording, the retailer should not undermine that messaging elsewhere in the journey.
4. Affordability checks
The new rules place greater emphasis on affordability. FCA consumer guidance states that lenders now need to check whether customers can afford to repay before they take out a DPC agreement. It also says lenders need to give important information before the agreement, including the amount borrowed, when repayments are due, how much repayments will be, how much any late fee will be, and the rights and protections the consumer will have.
Commercially, that may introduce friction at checkout. Some customers may be declined. Some may abandon baskets. Some BNPL journeys may become less instantaneous. But retailers should be careful about treating all friction as a negative. In a credit context, a pause to assess affordability, provide information or prevent unsuitable borrowing is part of the compliance framework.
5. Returns, refunds and Section 75: the operational bit retailers cannot ignore
BNPL can complicate the already messy world of returns. Customers may return part of an order, exchange goods, claim goods are faulty, or raise disputes while instalments remain outstanding. The FCA’s consumer guidance states that, where something goes wrong with goods bought using DPC arrangements, consumers may be able to get a refund from the lender because Section 75 of the Consumer Credit Act is available (giving similar protection to payment by credit card).
Retailers should ensure their customer service teams understand how refunds interact with BNPL. If a customer returns goods, when is the BNPL provider notified? Are instalments paused? What happens where only part of a basket is returned? Are cancellation rights, refunds and complaint routes explained consistently across the merchant’s terms, FAQs and customer service scripts?
This is a classic “legal meets operations” issue. The contract with the BNPL provider should allocate responsibility for refunds, chargebacks, complaints, data flows, customer communications and reconciliation. The retailer’s consumer-facing terms should also avoid conflicts between its returns policy and the BNPL provider’s payment terms.
6. Consumer duty and reputational risk: even indirect exposure matters
Although the FCA regime applies directly to DPC lenders, retailers should not take false comfort from the idea that BNPL compliance is “someone else’s problem”.
For a retailer, the biggest risk may be indirect, for example complaints, poor customer reviews, press scrutiny, ASA complaints, social media backlash or allegations that the brand is pushing debt to drive sales. This is particularly relevant for sectors where purchases may be aspirational, trend-led or influenced by social media, fashion, beauty, luxury, wellness and consumer tech being obvious examples.
Brands should think carefully before using BNPL as a promotional hook. “Buy the whole look now, pay later” may be punchy, but if it appears in the context of urgency messaging, limited-time discounts, influencer content or youth-skewed campaigns, the overall impression may feel uncomfortable.
7. Contractual protections retailers should ask for
Retailers should review their BNPL provider agreements with a compliance and brand-risk lens. Key protections to consider include:
- warranties that the provider has and will maintain all required FCA authorisations or temporary permissions;
- obligations to comply with applicable consumer credit, financial promotions, advertising, consumer protection and data protection laws;
- controls over who approves checkout wording, customer communications and marketing claims;
- obligations to notify the retailer of regulatory investigations, material complaints, systemic issues or permission changes;
- clear allocation of responsibility for affordability checks, disclosures, arrears communications and complaint handling;
- service levels for refunds, order cancellations and customer support escalation;
- indemnities for regulatory breach and consumer claims (e.g. such asmisleading provider materials or failure to process refunds correctly);
- termination rights where the provider loses permissions, breaches law or creates reputational risk for the retailer.
The key is not to treat the BNPL agreement as a standard payment processing contract. It is a regulated-credit-adjacent commercial arrangement that directly affects the customer experience.
8. In-house BNPL and store credit need separate analysis
The FCA draws a distinction between DPC agreements involving a third-party lender and arrangements where the business selling the goods also provides the DPC itself. Its consumer guidance states that if a customer buys something from a business and uses DPC provided by that same business, it is not regulated under that specific DPC regime. But this does not mean that consumer credit controls may not apply.
Retailers who create their own instalment, deferred payment or store-credit model should check whether they fall within the permitted consumer credit exemption and whether any other consumer credit rules, , consumer protection requirements, advertising rules, data issues or unfair terms considerations apply. In-house models can also raise additional operational and cashflow questions because the retailer is no longer merely integrating a payment option; it is potentially taking on credit risk and customer servicing responsibilities itself.
Summary
BNPL remains commercially attractive. Used responsibly, it can give consumers flexibility and help retailers offer more choice at checkout. But the legal environment has shifted. Retailers should be reviewing their BNPL provider due diligence, checkout wording, marketing claims, refund processes, customer service scripts, data flows and contractual protections. The brands that get this right will not necessarily be the ones who make BNPL invisible or frictionless. They will be the ones who make it clear, compliant and commercially sustainable.
