In the past few years, consumer reliance on Buy Now Pay Later (BNPL) services has dramatically increased as these services allow clients to buy goods and pay for them later, payments can be deferred. Moreover, this model offers flexibility and encompasses a modern approach to debt financing, however, that comes with its own risks. By 2025, Governments around the world will be facing the question: Is it time to intervene and regulate BNPL?
The Rise of BNPL and Emerging Concerns
BNPL services allow consumers to split purchases into parts and pay for them in installments or chunks without interest. The flexibility offered by these services is responsible for their increasing use, especially among youth. However, with rapid growth comes issues. In this case, an alarming growth of BNPL applications was highlighted in a report by the Consumer Financial Protection Bureau from 2019 to 2022 where the approval rate skyrocketed with daily applications transcending from 100,000 in 2019 to over 1 million in 2022.
This increase makes one wonder if consumers will tend to default in the future. The answer lies in the fact that the majority of the public utilising BNPL do not undergo extensive credit checks. This means consumers will be able to pile debt on multiple platforms, leading to being overwhelmed.
Global Regulatory Responses
Several governments noticed the issue and decided to take actionable steps to control the growing BNPL industry:
- United States: In May 2024, the CFPB gave out an interpretable legislation stating that BNPL providers, which give the service of “pay-in-four” should be treated as credit providers. This means that their activities are controlled by regulation equal to that for traditional credit card companies, which includes requirements for cost disclosures and dispute resolution mechanisms.
- Australia: In February 2025, the Australian Government proposed draft legislation aimed at integrating BNPL providers into the National Consumer Credit Protection framework. This approach is intended to monitor BNPL in a manner that is flexible, responsive, and proportionate to the level of risk of consumer harm.
- United Kingdom: The UK Government has consulted on bringing BNPL lenders under the regulatory scope of the Financial Conduct Authority (FCA). This would also place a requirement on BNBL providers to carry out affordability assessments and provide access to redress through the Financial Ombudsman Service.
The Case for Proactive Regulation
Supporters of regulation contend that without some level of oversight, the availability of credit is likely to cause significant harm to consumers through Rapid debt accumulation due to increased access to credit with no stringent controls. In addition, there is a lack of uniform reporting to credit bureaus, which means that a consumer’s debts incurred through BNPL may not get reflected in their credit profile, masking the consumer’s financial obligations.
Regulation may require that pre-transaction affordability assessments are done to guarantee that consumers have the ability to repay the debt. It would also require a clear explanation of the terms so that consumers can help them make choices that are beneficial to them. Moreover, bringing BNPL under the existing laws of credit would give consumers protection against unfair exploitation and provide means to address issues and grievances.
Conclusion
The year 2025 heralds new innovations and possibilities with regard to consumer credit, as the BNPL system is set to transform. During this period, governments will face the challenge of coming up with comprehensive regulations that guard the welfare of consumers whilst promoting innovation. An intervention today could help avert a crisis tomorrow and ensure this remains an option for consumers across the globe.