When the regulator expects firms to prove their frameworks actually work, not just exist on paper

As we close out Debt Awareness Week 2025, this is our final post in Arum-Global’s series reflecting on where the debt landscape stands and where it is heading. We have covered vulnerability, forbearance, and collections practice across the week and we are ending where the regulatory momentum is pointing: Buy Now, Pay Later (BNPL). Few areas deserve more scrutiny right now than this product, which has grown at extraordinary speed but largely outside traditional credit regulation.

That era is ending.

The UK Government has confirmed that third party Deferred Payment Credit (DPC) agreements will fall inside the FCA’s regulatory perimeter, with final rules expected to take effect in July 2026, subject to legislative steps. Once implemented, BNPL will sit firmly under full FCA supervision.

This is not a minor technical change. It is the biggest reset in short‑term consumer credit oversight for more than a decade.

And while 2026 will be the year firms implement new rules, 2027 will be the year the FCA tests whether those rules actually work.

A Market That Grew Outside the Credit Framework

BNPL grew at extraordinary speed from roughly £60 million in 2017 to more than £13 billion in annual transactions by 2024. That expansion happened under a lighter‑touch regime.

Research from the FCA shows that BNPL users skew younger, have lower financial resilience, and are nearly twice as likely to be in serious financial difficulty than the wider UK population. As BNPL becomes regulated credit, that risk profile moves fully into supervisory view.

What Regulation Will Require

Once regulated, third‑party BNPL lenders must:

• Hold FCA authorisation or operate under transitional permissions
• Conduct proportionate affordability and creditworthiness checks
• Provide clear pre‑contract disclosures that consumers can genuinely understand
• Treat customers in difficulty in line with CONC, including full CONC 7 arrears standards
• Come under the Financial Ombudsman Service
• Demonstrate Consumer Duty compliance through measurable outcomes

Importantly, existing agreements written before regulation day remain outside scope. This creates an operationally challenging dual‑portfolio environment: regulated BNPL on one side, legacy exempt agreements on the other.

For fast‑scaling providers, this will shine a spotlight on previously hidden weaknesses in data, governance, and arrears handling.

Strategic Implications for Banks, Lenders, and Creditors

This isn’t just a BNPL‑provider story, the shift affects retail banks, embedded finance models, and any institution with exposure to short‑term credit.

1. Affordability Visibility Will Change Credit Decisioning

BNPL has historically been invisible in mainstream affordability checks. With mandatory assessments, lenders will begin seeing stacked BNPL debt, parallel instalments, and concentrated short‑term obligations.

This affects:

• Affordability modelling
• Underwriting and pricing
• Portfolio segmentation
• Early‑warning indicator design

Given the FCA’s findings on financial resilience, this immediately alters credit‑risk appetite.

2. Conduct Risk in Arrears Becomes Supervisory Risk

BNPL arrears now fall under full CONC 7 expectations:

• Timely, clear, actionable communications
• Proportionate forbearance
• Effective vulnerability identification
• Avoidance of disproportionate collections activity

Even low arrears percentages on a £13bn market create meaningful operational volume. Firms with immature arrears capability will struggle.

3. Complaints and FOS Jurisdiction Will Increase Cost‑to‑Serve

Once regulated:

Disputes over merchant returns, unclear disclosures, missing reminders, or affordability decisions become formal complaints.
That means:

• More FOS escalations
• Higher redress exposure
• A heavier operational burden

BNPL providers built for frictionless checkout, not robust back‑office controls, will feel this acutely.

4. Capital, Provisions, and ECL Will Become More Volatile

With BNPL now sitting under standard credit regulation:

• IFRS9 staging may change
• ECL volatility may increase
• Portfolios may “season” differently once arrears are recognised more rigorously

For banks partnering with or funding BNPL, conduct risk and credit risk now intersect more clearly than ever.

Why 2027 Is the Real Stress Test

2026 is about structural compliance.
2027 is about demonstrable outcomes.

The FCA will expect firms to prove:

• Affordability checks were effective, not procedural
• Vulnerability frameworks work in practice, not on paper
• Root‑cause drivers of complaints are understood and reducing
• Governance over third‑party BNPL arrangements is active, not passive
• MI demonstrates Consumer Duty outcomes, not activity levels

The regulator will be looking for evidence of harm reduction, not tidy documentation.

What Boards Should Be Asking Now

Boards and Exec teams should already be asking:

1. Are BNPL journeys aligned to regulated‑credit standards end‑to‑end?
2. Is affordability decisioning complete, consistent, defensible?
3. Do arrears and vulnerability processes meet CONC expectations?
4. Can current MI evidence Consumer Duty outcomes, not just compliance activity?
5. Do funding or partnership models introduce indirect conduct risk?

This is not just a compliance uplift it’s a structural integration of BNPL into the UK’s mainstream credit system.

Navigating the Shift

For many firms, the challenge isn’t understanding the rules it’s operational translation.

Effective readiness requires:

• Independent regulatory gap assessment
• Redesign of affordability, disclosure, and conduct frameworks
• Strengthened collections and vulnerability operations
• Governance that can prove outcomes
• Portfolio stress‑testing ahead of the first full supervisory cycle

2026 marks the transition.
2027 determines who truly embedded the change.

As Debt Awareness Week 2026 draws to a close, the theme running through everything Arum-Global has shared is consistent: regulation only delivers real consumer benefit when firms operationalise it with genuine intent.
BNPL regulation is arriving at exactly the moment consumers need greater clarity, stronger protections, and fairer treatment – and the FCA will be watching closely to ensure the industry delivers.

If BNPL is on your agenda for 2026, now is the time to shift from awareness to structured readiness, because by the time Debt Awareness Week comes around again in 2027, the industry will be expected to show real progress, not just plans.

Thank you for following Arum-Global’s Debt Awareness Week 2025 content. If any of these topics resonate with challenges your organisation is navigating, we would welcome the conversation.

Arum-Global helps banks, lenders, and creditors navigate regulatory change, strengthen collections operations, and build compliance frameworks that deliver measurable consumer outcomes. Get in touch to discuss how we can support your BNPL readiness journey.

How we can help

Organisations don’t need to navigate this alone. Many benefit from an independent view of their current collections environment, from call listening and skills analysis to identifying gaps, strengthening processes and supporting training delivery.

With the right expertise behind them, teams can embed these behaviours quickly and confidently, creating lasting change for customers and the organisation.

Take a look at our helpful resources below or contact us directly to discuss your needs.

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About the author

Stephen is Sales Director at Arum Global, leading financial services engagements across the UK and Canada. He brings extensive experience delivering complex solutions to major enterprises, having previously worked with clients such as Citi Bank, Lloyds Banking Group, Centrica, Chevron & Shell amongst other complex enterprise clients. Stephen combines deep industry knowledge with a consultative approach to drive transformation and measurable results.

Stephen Wright
Sales Director