Finance

UK to regulate buy now, pay later firms like Klarna and Affirm

Published

4 weeks ago

May 19, 2025

Klarna is synonymous with the “buy now, pay later” trend of making a purchase and deferring payment until the end of the month or paying over interest-free monthly installments.

Nikolas Kokovlis | Nurphoto | Getty Images

The U.K. government on Monday laid out proposals to bring short-term loans under formal rules as it looks to clamp down on the “wild west” of the buy now, pay later sector.

Fintech firms like Klarna and Block’s Afterpay have flourished by offering interest-free financing on everything from fashion and gadgets to food deliveries — while at the same time stoking concerns around affordability. The space is highly competitive, with U.S. player Affirm launching in the U.K. just last year.

City Minister Emma Reynolds said in a statement Monday that the U.K.’s new rules were designed to tackle a sense of “wild west” in the buy now, pay later (BNPL) space, adding the measures “will protect shoppers from debt traps and give the sector the certainty it needs to invest, grow, and create jobs.”

Under the U.K. proposals, BNPL firms will be required to make upfront checks to ensure people can repay what they borrow and make it easier for customers to access refunds.

Consumers will also be able to take BNPL complaints to the Financial Ombudsman, a service created by the U.K. Parliament to settle disputes between consumers and financial services firms.

The rules are expected to come into force next year, according to the government.

Klarna said it has long supported calls to bring BNPL into the regulatory fold. “It’s good to see progress on regulation, and we look forward to working with the FCA on rules to protect consumers and encourage innovation,” a spokesperson for the company told CNBC via email.

“Regulation will give clarity and consistency to the sector, establishing a consistent operating environment and compliance standards for all providers,” spokesperson for Clearpay, the U.K. arm of Afterpay, said in an emailed statement.

“It will also create a more sustainable foundation for the future of BNPL as it continues to grow as an everyday payment option for consumers.”

While buy now, pay later firms have publicly expressed support for regulation, many were concerned about regulators applying outdated rules to their business models. The Consumer Credit Act, which regulates lending and borrowing in the U.K., has existed for over 50 years.

For its part, the government said it plans to adapt the Consumer Credit Act to allow for a “modern, pro-growth framework that reflects how people borrow today.”

WATCH: CNBC’s full interview with Affirm CEO Max Levchin