Deferred payment options have existed for decades, but the modern buy now pay later (BNPL) model began taking shape in the late 2000s. By offering digital, interest-free payment options as a distinct method for merchants, BNPL has rapidly gained traction, driving higher conversion rates and order values. Today, BNPL services account for 9% of e-commerce transactions (90 billion) in Europe, according to the WorldPay Global Payments Report 2024, highlighting their fast-growing consumer appeal.

When the first Consumer Credit Directive (CCD1) was introduced in 2008 by the European Commission, BNPL services were still emerging and excluded from its scope. However, their exponential growth in recent years has raised concerns about rising consumer debt, lack of transparency, and overspending.

The second Consumer Credit Directive (CCD2) aims to address these issues by bringing BNPL services under its regulatory framework. This marks a pivotal moment for the EU’s BNPL ecosystem. While CCD2 aims to mitigate risks such as overspending and unclear terms, it also introduces new complexities, requiring BNPL providers to adapt their business models. Ultimately, the impact of CCD2 will hinge on how national regulators implement it into local laws, shaping the future of a sustainable BNPL market.

CCD2 introduces key EU rules to protect consumers and regulate BNPL services

To address the rapid growth of easy-access credit services and strengthen consumer protection, CCD2 introduces two notable adjustments:

• Expanded credit boundaries: The directive now covers loans of up to €100,000, broadening the scope from the previous €200 to €75,000 range. While the upper limit accounts for inflation, the removal of a lower threshold ensures that even small-value loans are regulated.
• Limited exemptions: Deferred payment options offered by direct suppliers (for example hospitals and plumbers) are generally exempt, except for “large online suppliers” or “service providers with substantial customer bases.”

The inclusion of BNPL services under CCD2 introduces several significant implications, including:

• Fee (APR) caps: Annual percentage rate (APR) and fee caps will now be subject to national limits to prevent excessive costs for consumers.
• Risk assessment: Providers must conduct thorough creditworthiness checks based on the applicant’s financial circumstances.
• Affordability checks: Providers must evaluate a consumer’s ability to manage repayments to prevent financial distress.
• Consumer information disclosure: Stricter guidelines will mandate clear and detailed communications of credit terms, risks, and costs.

These changes aim to foster greater transparency and accountability within the BNPL sector. Full implementation is expected by Q4 2026, following the transposition of CCD2 into national laws by the end of 2025 (Exhibit 1).

New challenges for buy now pay later providers under CCD2

National APR caps will force pricing changes

EU member states enforce national regulations or guidelines that cap the maximum annual percentage rate (APR) for credit, covering both interest and fees. Under CCD2, BNPL services will be classified as credit, meaning late repayment fees and interest charges must comply with these local APR caps. This could significantly alter current pricing models (Exhibit 2).

These national differences create significant challenges for BNPL providers, who must adjust their pricing strategies to remain compliant. For example, under the current pricing model of a major BNPL provider, a deferred payment of €100 includes two rounds of reminder fees, each of €7.50.

When complying with the local APRs in each country, BNPL would lead to the following permitted charges:

• Netherlands: At 15% per year, the maximum late payment fee is €2.50.1 This is calculated based on a €100 payment delayed by approximately two months.
• Sweden: With a 2.75% reference rate, the maximum cap fee is €7.13.
• Belgium: The fee cap of €20 for credit less than €150 allows the current €15.00 fee to remain compliant.
• Luxembourg: At 16% per year, the maximum late payment fee is €2.67.

These examples highlight significant regulatory differences across member states. To remain compliant once CCD2 takes effect, BNPL providers must adopt country-specific approaches to pricing.

Stricter credit checks will require more data

Under CCD2, BNPL providers must enhance their creditworthiness assessments to ensure consumers can manage repayments responsibly. While most BNPL providers currently rely on soft credit checks that only offer limited insights, the directive mandates more robust evaluations based on accurate and relevant information about the consumer’s financial situation.

These assessments must adhere to European Banking Authority (EBA) guidelines, requiring BNPL providers to consider key factors such as income, repayment history, assets, liabilities, and other financial commitments. To meet these requirements, providers will need to establish connections with credit institutions across the member states where they operate. Access to reliable financial data will enable more accurate evaluations of a consumer’s ability to manage credit responsibly.

New disclosure rules will demand transparency

CCD2 introduces stricter requirements for consumer information disclosure, ensuring greater transparency in credit agreements. Currently, BNPL services often lack clear communication about the associated risks. Under the directive, creditors must clearly communicate credit terms such as costs, repayment terms, and consumer rights, making it easier for customers to understand the risks and commitment involved.

While the directive’s goal is to ensure consumers are fully informed before entering into credit agreements, the specific implementation may vary across member states. These differences reflect local legal frameworks and cultural norms, posing a challenge for BNPL providers to achieve compliance while maintaining a consistent consumer experience.

How CCD2 will reshape the BNPL ecosystem

Consumers will see more protections but less accessibility

Enhanced protections, such as limits on interest rates and late fees, align with the European Commission’s goal of preventing overconsumption and excessive debt. However, stricter creditworthiness and affordability checks may discourage eligible consumers due to a more cumbersome application process. This could reduce the accessibility and convenience that make BNPL services attractive, potentially altering consumer behavior and diminishing their appeal.

BNPL providers must revamp their business models

CCD2 will significantly pressure BNPL providers to adapt their business models. Compliance with stricter requirements will increase operational costs, prompting providers to explore strategies such as raising fees for merchants or introducing minimum spending thresholds for BNPL services to bridge the revenue gap.

E-commerce merchants may face lower conversion rates

Stricter BNPL regulations may result in lower conversion rates for e-commerce merchants, as the increased costs and reduced flexibility of these services could deter consumers. While some transactions may shift to alternative payment options, an overall decline in e-commerce transaction volume is likely.

Banks are poised to expand in the BNPL market

Banks are well-positioned to capitalize on the changes introduced by CCD2. With their existing infrastructure and access to comprehensive consumer financial data, they can expand into the BNPL space by offering tailored credit options or enhancing existing payment products such as credit card instalment plans. This creates an opportunity for banks to better meet the needs of e-commerce businesses and consumers.

In summary, the Consumer Credit Directive 2 (CCD2) marks a pivotal moment for Buy Now Pay Later (BNPL) services in Europe. By enforcing stricter regulations on fee caps, credit assessments, and transparency, CCD2 aims to enhance consumer protection while addressing rising debt concerns. Although these changes may challenge existing providers and limit accessibility, they also create opportunities for banks to enter the BNPL ecosystem.