Deferred payments let customers receive goods now and pay later through a single lump sum, split instalments, or a longer-term credit agreement. In the UK, the short-term interest-free option—commonly known as buy now, pay later (BNPL)—has grown fast and operated with minimal regulation, but upcoming changes will affect how businesses offer it and how customers use it.

A 2024 survey found that 20% of UK adults used BNPL in the previous 12 months, up from 17% in 2022.

Below, we’ll cover how deferred payments and BNPL work, what businesses gain from them, and the risks for both businesses and customers.

Highlights

• Short-term, interest-free BNPL has operated with minimal regulation, but incoming regulation will add new obligations for providers.

• Businesses offering BNPL can see higher average order values and better checkout conversion. But the fee structure requires careful modelling against actual margins.

• The bulk of the compliance burden falls on credit providers rather than businesses. But disclosure requirements and financial-promotions rules complicate the checkout approval flow.

What are deferred payments?

A deferred payment is an agreement where the buyer receives goods or services now but pays later.

In the UK, there are a few distinct forms:

• Pay in 30 days: A single deferred due date, typically interest-free if paid on time.

• Split payments: Three or four equal instalments, usually fortnightly and interest-free. BNPL is a type of split payment that involves the customer paying a BNPL provider.

• Longer-term instalment loans: Interest-bearing, running 6 to 36 months, and already regulated under the Consumer Credit Act 1974.

How does BNPL work?

BNPL is an increasingly popular payment method that encompasses payments and credit.

Here’s how it works in practice:

• Checkout selection: The customer selects BNPL as their payment method, either on a retailer’s website or in store through a connected terminal.

• Instant approval: The BNPL provider (e.g., Klarna or Clearpay) runs a soft credit check in seconds and returns an approval decision before the customer has time to reconsider.

• Immediate settlement: The provider pays the business the full purchase amount, minus its fee, typically within one to three business days.

• Repayment: The customer repays the provider directly according to the agreed-upon schedule.

• Late fees: If the customer misses a payment, the provider charges a late fee. The exact amount and any cap vary by provider.

How does BNPL compare to traditional credit products?

BNPL and traditional credit products have structural differences that define how they work and how easily they’re accessed.

Here's what to consider:

• Speed and friction: A credit card application involves a hard credit check, waiting period, and revolving credit line you carry indefinitely. BNPL approval takes seconds, uses a soft credit check, and is tied to a single transaction.

• Cost to the customer: Interest-free BNPL products cost the customer nothing as long as they make payments on time, while many credit cards have annual fees.

• Cost to the business: UK interchange rules cap Visa and Mastercard fees at 0.2% for consumer debit and 0.3% for consumer credit on domestic transactions, though commercial cards can run higher. BNPL fees to businesses are typically higher than card network fees, but many businesses accept this because conversion and higher order values can offset it.

• Consumer protections: Section 75 of the Consumer Credit Act 1974 gives credit card users a direct claim against the card issuer for any breach of contract or misrepresentation by the supplier where the cash price of a single item is more than £100 and not more than £30,000. Short-term, interest-free BNPL has historically operated outside this framework, though Section 75 will extend to regulated BNPL agreements from 15 July 2026.

How do businesses benefit from offering deferred payments?

The business case for BNPL is clearest in sectors where the up-front price is a genuine barrier to purchase (e.g., fashion, electronics, home goods, health and wellness).

Here are some of the biggest benefits:

• Higher average order value: Customers tend to spend more when they aren’t constrained by the up-front cost. This effect is usually strongest for high-value items, where the full price feels substantial but the instalment amount doesn’t.

• Better conversion rates: Abandoned carts often reflect payment hesitation. Offering instalment options at checkout reduces that drop-off, particularly for more expensive items.

• Broader customer reach: Customers without credit cards, or those who don’t use them by choice, become accessible.

• Guaranteed settlement: The BNPL provider pays in full. The business doesn’t carry credit risk or chase late payments.

• Competitive positioning: In categories where BNPL is now standard (e.g., fast fashion, consumer electronics, fitness equipment), not offering it can put you at a disadvantage if your competitors do.

Stripe supports BNPL options including Klarna and Clearpay through a single integration, so businesses can add these methods to their checkout without building separate connections to each provider. Stripe handles the routing, settlement, and reconciliation, which matters when you’re managing multiple payment methods across a high volume of transactions.

What are the risks and constraints of deferred payments in the UK?

Deferred payments carry risks for both customers and businesses, and they’re worth understanding before you commit to them.

For customers, the primary concern is debt accumulation. Because BNPL approval is fast and easy, it’s possible to take on multiple agreements across different providers without any single lender having visibility into the full picture. Late fees, while modest per transaction, can accumulate across multiple agreements. In fact, two in five BNPL users have borrowed money to make repayments.

For businesses, BNPL comes with the following risks:

• Fee structure: BNPL providers’ fees are higher than card network fees. At scale, on thin margins, that changes your unit economics. Model the impact against your actual conversion and order value increase before committing.

• Regulatory uncertainty: The FCA confirmed in February 2026 that BNPL (formally “Deferred Payment Credit”) will come under FCA regulation from 15 July 2026. From that date, BNPL providers will need to conduct affordability checks and offer complaint resolution through the Financial Ombudsman Service.

• Checkout friction in the future: Businesses offering BNPL through third-party providers won’t carry all of these compliance obligations directly, but incoming disclosure requirements will add steps to the checkout process. Any conversion projections based on current data should account for that.

Are deferred payments right for your business?

Whether deferred payments are right for your business depends on your margins, your average order value, and who your customers are.

Here's what to consider:

• Average order value: BNPL probably isn’t worth the fee if your average order value is low. The maths works only when checkout conversion and order value increase are large enough to cover the per-transaction cost. That’s a hard case to make for inexpensive items, but for expensive ones, BNPL often makes sense.

• Margins: Model the fee structure against your actual order value increase before committing. The headline numbers are often real, but the magnitude varies considerably by product category and customer base. If you’re operating on thin margins, the high transaction fees might not be worth it.

• Customer expectations: In categories where BNPL is now standard, its absence is noticeable. In B2B or professional services contexts, it’s not as relevant.

• Incoming regulation: The compliance burden sits with the credit provider, not the business. But added disclosure requirements will introduce more steps to the approval flow, so any projections built on current conversion data should account for that.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business – from scaling startups to global enterprises – accept payments online, in person and around the world.

Stripe Payments can help you:

• Optimise your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods and Link, a wallet built by Stripe.

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• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalise interactions, reward loyalty and grow revenue.

• Improve payments performance: Increase revenue with a range of customisable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorisation rates.

• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.

Learn more about how Stripe Payments can power your online and in-person payments or get started today.