BNPL, private credit and the global regulatory shift

Buy now pay later (BNPL) has transformed consumer payments across the globe in just a few years. Users are expected to exceed 900 million globally by 2027, with transaction value projected to reach USD 687 billion in 2028, up from USD 334 billion in 2024. Growth has been driven by the rapid expansion of e‑commerce, consumer demand for flexible, interest‑free instalment options, and merchants embedding BNPL into shopping journeys to improve conversion rates and order values. That scale of growth is precisely why the funding behind it, and how it holds up under pressure, now matters so much.

Much of this growth has been funded by private credit. In 2025, firms including Blue Owl Capital, KKR, Elliott Investment Management and Sixth Street entered forward-flow arrangements (agreements to buy newly originated loans from a lender on an ongoing basis) to purchase USD 136 billion of consumer loans, compared to USD 10 billion the year earlier. Further deals followed in 2026. In March, Klarna doubled an existing agreement with Elliott to USD 2 billion, allowing the BNPL provider to fund up to USD 17 billion in larger, longer-term loans. Affirm has confirmed that selling billions of dollars of current and future loans through forward-flow agreements is a key plank of its growth plans. 

When pressure in private credit meets regulatory change 

The private credit industry is now under scrutiny. A series of high‑profile defaults has prompted questions across private credit about underwriting standards, valuation transparency and risk management. Investor confidence has faltered as a result, with rising withdrawal requests and restrictions on redemptions. For example, in February 2026, Blue Owl Capital removed the quarterly redemption option from one of its retail private debt funds and sold USD 1.4 billion of assets across three funds to return capital to investors. 

For BNPL providers, this coincides with a period of regulatory and operational change. Neither BNPL loan books nor the funding structures behind them have been tested through a genuine consumer downturn, and analysts have questioned what would happen to origination capacity if private credit were to scale back its support for the sector. For providers that have built growth plans around forward‑flow capacity, replacement funding may not be available quickly or at comparable cost.

Challenges faced by BNPL providers

At the same time, the BNPL sector is being reshaped by regulation, with UK providers under FCA supervision since 15 July 2026 as policymakers introduce rules on responsible lending and consumer protection. Providers are now navigating a combination of regulatory change, economic headwinds and competitive pressures.

• Regulatory demands: firms must build capability around risk management, affordability and creditworthiness assessments, and disclosures, and absorb the associated cost of compliance. Consumers now have the right to report complaints to the Financial Ombudsman Service (FOS). Lenders will be aware that a high level of consumer complaints and associated compensation payments can have significant financial implications. Firms in the temporary permissions regime are not required to report complaints until fully authorised, so a complete picture of complaint volumes, and of the associated cost, will take time to emerge 
• Higher default rates: Macroeconomic pressure and rising debt levels can push up defaults, which may be challenging for BNPL lenders given the high-volume, low-margin nature of the sector 
• Increased competition: Banks, fintechs, and card issuers continue to enter the market. This puts downward pressure on margins, a metric funders watch closely, and is likely to accelerate consolidation
• Profitability pressures: After years of prioritising growth, providers face increasing investor demands to achieve profitability
• Operating model economics: Firms face a delicate balance in setting merchant fees versus consumer fees and charges that comply with regulations.

Snapshot of global BNPL markets and regulations 

Private credit investment in BNPL is global, but the loan books it funds sit under very different regulatory regimes and carry different risk profiles as a result. Scale alone doesn't tell a funder how exposed they are. What matters is the regulatory regime and the consumer dynamics driving growth in each market.

China: The world's largest BNPL market by transaction value, around USD 122 billion, driven by embedded credit inside Alipay (Ant Group's Huabei) and WeChat Pay, alongside a rising middle class and urbanisation. There is no BNPL-specific regulation; providers operate under general credit-licensing rules. These loan books are also financed largely through domestic platform and bank balance sheets rather than Western private credit.

United States: The second-largest market at roughly USD 107.4 billion, led by Affirm, Klarna and PayPal, with nearly half of US consumers having adopted BNPL. Federal oversight has receded rather than tightened: the CFPB withdrew its 2024 rule treating BNPL providers as credit card issuers and has deprioritised enforcement. New York's move to legislate for stricter oversight, proposing creditworthiness checks, limits on interest and charges, enhanced disclosure and requirements around refunds and disputes, may be the first sign of state-level regulation filling that gap. For funders, this is where lending volume is most clearly outrunning oversight.

Germany and the Nordics: Germany is Europe's largest market at roughly USD 71.6 billion, built on a long-standing preference for invoice-based payment (commonly known as Open Invoice) that has translated smoothly into BNPL. Sweden has the highest BNPL penetration of any market globally, at around a quarter of online sales, with Finland and Norway close behind at around a fifth. The EU's revised Consumer Credit Directive brings BNPL within regulated credit, applied uniformly across member states from November 2026. Key changes include stricter lending controls, interest and fee regulation, expanded consumer rights and specific obligations for retailers; direct-to-consumer BNPL offered by retailers retains a limited exemption. 

United Kingdom: A fast-growing, mature market at approximately USD 38 billion, with roughly a quarter of UK adults having used BNPL. FCA regulation came into force on 15 July 2026: providers must be authorised, run affordability checks and give clearer disclosure, and consumers can now complain to the FOS. The Consumer Duty also applies, requiring good consumer outcomes and support for customers in financial difficulty. This is one of the most heavily regulated major markets. Compliance costs will likely slow growth, but mandatory affordability checks and improved reporting should give funders a clearer read on loan book quality.

Australia: An early adopter that moved from self-regulation to a formal credit-licencing regime in June 2025. Consumer demand built on a long-standing habit of lay-by, where shoppers paid in instalments before taking goods home; BNPL kept the instalments but let consumers take possession straight away, a small change that proved decisive for adoption. Providers must hold a credit license, meet responsible lending obligations, conduct credit assessments and comply with limits on interest and charges, in a market valued at roughly USD 18.0 billion. Like the UK, formal licensing gives funders a clearer picture of loan book risk, at the cost of slower growth.

Japan: A distinct model built on the country's long-standing convenience-store culture, adapted to digital checkout by providers including Paidy (now part of PayPal). There is no BNPL-specific law; providers instead fall under the general Installment Sales Act, which was not designed with BNPL in mind. That leaves funders in a similar position to the US and China: real scale, without a regulatory regime built to test it. The market is valued at approximately USD 18.8 billion. 

India: A fast-growing market (valued at USD 25.0 billion in 2025), driven by a young, credit-card-light population increasingly served by embedded checkout credit. Amazon's 2025 acquisition of Axio, one of India's largest BNPL lenders, signals how strategically important the market has become to global platforms. Reserve Bank of India rules introduced in May 2025 strengthened oversight of digital lenders on consumer protection, data standards and technology risk, putting India closer to the direction of travel in the UK and Australia.

Emerging regional hubs: Southeast Asia and Africa, led by providers such as Kredivo, and the Middle East and Latin America, led by Tamara and Mercado Pago, are scaling fastest of all, driven by financial inclusion and underbanked populations. That growth is the opportunity; these are the markets with the most room to run. But regulatory maturity varies widely and generally lags the pace of growth, so the same underbanked demand that fuels expansion also means funders have the least visibility and oversight of potential issues.

What this means for BNPL providers and their funders

We expect clearer regulatory frameworks to strengthen the sector's long-term viability, though they will shape funding dynamics differently across markets. 

In tightly regulated markets, such as the UK, Germany, the Nordics and Australia, compliance costs are higher and growth is likely to slow, though better underwriting data and mandatory reporting should continue to make loan books attractive to institutional funders. In the US, China, Japan and emerging hubs, by contrast, growth remains strong, but portfolios carry the risks that come with limited oversight, and investor appetite may ease if consumer credit conditions deteriorate.

The next phase of BNPL's growth will be shaped as much by regulatory geography as by consumer demand. Providers and funders in tightly regulated markets are trading growth for resilience. Those in less regulated markets, regardless of size, are trading resilience for growth, often without knowing it.

Building resilience now, while there's time to plan for stress rather than react to it, is easier than doing so under pressure. Our financial services restructuring team works with consumer credit providers and their funders to achieve exactly that. 

For more information or advice, contact Jarred Erceg.

Sources include: Bloomberg: Private Credit Is Betting on Consumer Debt at a Precarious Time, 28 June 2026