Regulation: Powerful reboot for BNPL

The party is over. Or at least this is what many thought. The valuation crash of the industry giant Klarna in 2022, the planned market entry of the tech giant Apple, and the prospect of tightened regulations in important markets in 2023 provoked some to prematurely announce the end of BNPL.

The fact, however, is that the fintech sector is more alive than ever and is ready for new forms of digital financing. “Buy now, pay later” is still in high demand among consumers, especially because of the high inflation: many people are prompted to use BNPL methods like installment payments in order to afford various everyday things.

bnpl regulation

The enormous demand for BNPL services has therefore encouraged regulatory authorities to take action. They have certainly recognized the value of these services and now aim to turn them into more regulated channels. Both the UK and the EU are expected to introduce new rules for BNPL providers in 2023. This, however, will not hinder the industry, but will rather strengthen it.

Great Britain demonstrates how it’s done

The UK is making the first step. “Buy now, pay later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place,” states the local government. “By holding buy now, pay later to the high standards we expect of other loans and forms of credit, we are protecting consumers and fostering a safe growth of this innovative market in the UK.”

In Great Britain, it is planned that from 2023 BNPL providers will have to obtain permission from the Financial Conduct Authority (FCA) and  work with the Financial Ombudsman Service (FOS). As of the middle of next year, it can be expected that the offers from Klarna and similar providers will be adapted to the credit offers of traditional banks. Providers will need to ensure that credit is affordable and that advertising for services is fair, clear, and not misleading.

EU brings new rules in 2023

After Great Britain, the EU will most likely follow. A proposal by the EU Commission from 2021 aims to close existing loopholes for loan amounts, repayment periods, and so-called “interest-free” agreements with a new directive for consumer credit. Until now, market participants have been able to take advantage of exceptions in the online area that are not available to traditional financial institutions, and thus gain an advantage.

In June 2022, however, the Council of the European Commission stated that when revising the Consumer Credit Directive “an optional partial exemption from certain provisions” would be allowed.


Specifically, the Council wants to apply exceptions for:

  • Loans for amounts smaller than €200
  • Loans in the form of an overdraft facility (e.g. the loan exceeds the balance) that are repayable within three months
  • Interest-free and fee-free loans
  • Agreements with a maximum term of three months and minor costs 

For these products, there should be new rules for pre-contractual information, disclosure requirements, and provisions for early repayment. In general, consumers should be able to see clearly on one page what the conditions are.

Strengthening banks and their tech partners

The bottom line is that many BNPL services are being taken out of a gray area and regulated more closely in the interests of consumers. European banks support this. As a survey by Credi2 among 120 decision-makers in European banks shows, a large majority of more than 60 percent calls for market regulation in competition with non-banks.

This sets the course for the BNPL future. New rules for the market mean that fintechs like Credi2 are well positioned as tech partners for banks to continue offering trusted “Buy Now Pay Later” services alongside the already regulated financial institutions in the market. However, it will be difficult for fintechs, who have previously operated in the market as non-banks.