Buy Now Pay Later (BNPL) is a financing option that allows consumers to purchase goods or services immediately but pay for them over time, often in interest-free instalments. It has grown rapidly in popularity, particularly in e-commerce and retail, due to its convenience and accessibility.

BNPL providers typically partner with merchants to offer customers flexible payment terms at checkout. While it can improve sales and customer satisfaction, BNPL raises important compliance concerns related to Know Your Customer (KYC), credit risk, and anti-money laundering (AML) regulations.

How BNPL Works

BNPL operates as a short-term credit arrangement between a provider and the consumer. At checkout, customers select BNPL as their payment method, agree to the repayment schedule, and are approved instantly based on minimal credit checks or alternative scoring models.

The provider pays the merchant upfront, and the consumer repays the provider over several weeks or months. This process involves:

• Instant identity verification and credit assessment

• Merchant reimbursement minus transaction fees

• Customer repayment via linked bank accounts or cards

BNPL and Regulatory Compliance

The rise of BNPL has prompted regulators to address potential risks, particularly around consumer debt, financial inclusion, and fraud prevention.

According to the EBA’s 26 March 2025 press release, the Consumer Trends Report 2024/25 highlights payment fraud, growing indebtedness (driven in part by BNPL and short-term credit), and de-risking as the most pressing risks for EU consumers. The EBA explicitly links rising consumer debt to “inadequate creditworthiness assessment practices” and poor pre-contractual disclosure.

In many jurisdictions, BNPL providers must follow similar compliance frameworks as traditional lenders, including:

• Customer Due Diligence (CDD) and ongoing monitoring

• AML Screening for suspicious transactions

• Data protection compliance under GDPR or equivalent local laws

• Transparent disclosure of repayment terms and fees

BNPL Risk Factors

While BNPL offers convenience, it presents several risk areas for providers and regulators:

• Fraud and identity theft due to rapid onboarding

• Over-indebtedness from multiple BNPL arrangements

• Credit risk from non-performing loans

• Regulatory non-compliance if AML/KYC processes are inadequate

 In the U.S., the CFPB issued an interpretive rule on May 22, 2024 clarifying that BNPL lenders meet the criteria for credit card providers under TILA/Reg Z, which triggers dispute and refund rights for consumers

Best Practices for BNPL Compliance

BNPL providers can reduce risk and ensure compliance by:

• Implementing FacctView for robust customer identity verification

• Using FacctList to detect sanctioned or high-risk individuals

• Conducting regular creditworthiness assessments

• Disclosing repayment schedules and late fees upfront

• Establishing a clear dispute resolution process