The Buy Now, Pay Later (BNPL) industry stands at a critical juncture, facing unprecedented growth and mounting regulatory scrutiny. As oversight measures tighten globally, this shift is poised to reshape the BNPL landscape, potentially altering its relationship with retailers and consumers alike.
Having worked in fintech since 2012, my involvement with the BNPL sector began during the 2017 BillPay sale process, when Klarna's EUR 75 million bid outpaced our competing offer. This transaction marked an early phase of BNPL's expansion, which has since evolved into a significant force in global ecommerce. Recent developments, such as Affirm's expansion into the UK market, signalling a push for international growth, or Klarna's filing for an initial public offering (IPO) hints at the industry’s financial potential.
However, this build-up of economic activity coincides with increasing regulatory attention worldwide. As governments introduce stronger regulations, the BNPL industry faces a pivotal moment. These regulatory changes may redefine how BNPL providers operate and interact with both merchants and consumers, potentially reshaping the future of short-term consumer credit.
BNPL services have experienced explosive growth in recent years. The global BNPL market size was USD 132 billion in 2023 and is expected to grow to USD 3.68 trillion by 2030. In 2023, there were more than two billion BNPL transactions globally. The United States emerged as the largest BNPL market by value, while China led in transaction volume. Notably, Sweden boasts the largest BNPL penetration rate, with these services representing nearly all ecommerce sales. Nearly two-thirds (64%) of respondents in a Federal Reserve Bank of New York survey had been offered a BNPL loan, and 29% used it as a payment method over the past year.
These growth trends are driven by the expansion of ecommerce, evolving consumer behaviour, and increased accessibility to BNPL services, especially for young consumers. In 2023, 29% of Gen Xers utilised BNPL, and more than 40% are expected to do so by 2027. Simultaneously, Baby Boomer BNPL users are predicted to grow from 13% to 17.9% by 2027.
However, this growth comes with concerns. According to the Consumer Financial Protection Bureau (CFPB), BNPL delinquencies now stand at 2.39%, rising from 1.83% in 2020. This is not just due to inflation or macroeconomic factors. The previously mentioned New York Fed survey pointed out that the average BNPL customer tends to have a credit score below 620 or have 30 days or more delinquency during the year — customers who are most likely to be rejected by high-street banks. Indeed, the presence of BNPL services expands financial inclusion but, at the same time, opens a route to increasing debt for those who are not meeting market-appropriate affordability checks.
This transition has only recently begun and, at most major markets including the US, the UK, and Central and Eastern Europe, regulators are encouraging BNPL providers to become more like banks in the following ways:
United States: the Consumer Financial Protection Bureau (CFPB) has classified BNPL providers as credit card companies, subjecting them to the same legal protections that apply to conventional credit cards.
United Kingdom: the Financial Conduct Authority (FCA) is proposing regulations that would bring the BNPL sector under its purview. These proposed rules include stricter affordability checks, a move that could significantly impact the industry's current business model.
The European Union: the EU is revising its Consumer Credit Directive to encompass BNPL services, although full implementation is not expected until late 2026.
Australia: in March 2024, the Australian government released draft legislation proposing to amend the current regulatory framework to include BNPL products and other low-cost credit contracts. This legislation would require BNPL firms to hold an Australian credit license .
Global regulators are tightening their grip on the BNPL sector, implementing stricter oversight. As a result, the once-booming BNPL industry faces a challenging future. The easy accessibility that fuelled its rapid growth will likely diminish unless a broader set of products replaces it.
Regulatory changes are forcing BNPL companies to overhaul their strategies, with the following potentially severe consequences for both providers and merchants:
Affordability checks: the introduction of rigorous affordability checks and anti-money laundering (AML) procedures could potentially lead to a decrease in approval rates for BNPL products, since a large portion of customers could not be served under the amended standards.
Closed loop ecosystems: most BNPL players have built their strategies by creating ‘closed loop’ ecosystems, whereby consumers are encouraged to spend within a prescribed list of merchants. Some of those merchants heavily depend on sales volumes generated via BNPL channels (at one point, Affirm financed ‘close to 30% of Peloton’s monthly online business sales’).
Potential market impact: the new regulations may significantly reduce ecommerce turnover, especially for high-value items. Analysts expect turnover to decrease by 15–20% for some categories, whereas luxury items and electronics could see much more dramatic drops.
As regulatory pressures mount, the BNPL sector faces a critical transformation. The industry's future hinges on its ability to navigate increasingly stringent oversight while maintaining its core values proposition. Integrating traditional banking principles with fintech's agility presents challenges and opportunities. BNPL providers must now develop more sophisticated risk assessment models that balance regulatory compliance with consumer accessibility.
Successful providers will likely emerge by reimagining their role beyond simple credit offerings. This may involve creating more comprehensive financial products that leverage their technological advantages while meeting new regulatory standards. The most adaptable players will transform potential constraints into competitive advantages, potentially offering merchants more nuanced financial solutions than traditional banking channels.
The industry's counteroffer to banking sector dominance will likely centre on technological innovation and customer-centric design. This evolution could see BNPL providers competing with high-street banks — not just on credit offerings, but across a broader spectrum of financial services. Their agility in product development and customer experience could give them a significant edge, particularly in digital-first environments.
The next few years will test the sector's resilience. Those who can successfully blend regulatory compliance with innovative financial solutions will not just survive but potentially redefine the consumer finance landscape. Ultimately, the BNPL industry has reached a critical point. Its ability to evolve from a niche credit solution to a comprehensive financial service will determine its long-term viability in an increasingly regulated market.
Vladimir Kudriashov is the Managing Director and Founder of VLG Advisors, bringing over a decade of expertise in corporate strategy, investment banking, and international expansion. Vladimir is a trusted advisor, serving on investment committees and advisory boards, blending technical precision with strategic vision to deliver transformative results.
About VLG Advisors
VLG Advisors is a specialised financial advisory firm providing investment banking, corporate finance, and conflict resolution services. The firm’s experienced team executes complex transactions including buy-side advisory, capital raising, and debt restructuring. With a foundation in precision and transparency, VLG Advisors establishes strategic partnerships while maintaining rigorous standards across diverse sectors.
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