Buy Now, Pay Later Regulation Sets a New Standard for Embedded Systems
In May, the UK government unveiled long-anticipated regulations targeting Buy Now, Pay Later (BNPL) providers like Klarna and Affirm.i The new rules require mandatory affordability checks, clearer disclosures, and faster refund processing. These measures are designed to rein in what officials described as a “wild west” credit environment.
On the surface, this looks like consumer protection in action. But that’s not the whole story. The real shift is deeper and more operational. These rules aren’t only aimed at what the product does. They’re aimed at how the product is built. The rules are forcing platforms to overhaul how they handle core systems, such as how they collect, validate, store, and report the data that supports those protections.
This marks a broader shift as regulators look beyond how a product is priced or marketed. They’re looking underneath it. For BNPL providers and embedded finance more broadly, the compliance exposure is in the architecture — where the data comes from, how it is handled, and whether your systems can explain themselves when it counts.
Firms will need to treat data architecture as a compliance-critical system, capable of producing audit-ready outputs across ingestion, decisioning, and disclosure.
BNPL rules reveal the regulatory blueprint for embedded finance
The UK’s BNPL regulation reshapes how responsibility is assigned across the embedded finance value chain.ii The new framework reaches past BNPL originators to third-party lenders, payment facilitators, and firms that securitize or resell BNPL loans.
The scope of the regulation establishes a clear precedent: Regulators are assigning responsibility based on how firms participate in the embedded finance ecosystem, not just based on who originates the product. BNPL loans are integrated into merchant flows and repackaged into asset-backed securities. Regulators have responded with rules that follow the data — assigning oversight based on function and exposure.
Embedded investment platforms encounter the same exposure. Offerings built into broader ecosystems — like savings tools inside financial apps or embedded trading modules — use similar real-time data flows and personalization logic. That architecture now draws the same regulatory focus.
In the U.S., regulators have begun applying credit card-style protections to BNPL.iii The Consumer Financial Protection Bureau issued an interpretive rule confirming that BNPL lenders must handle billing disputes, refund returned products, and issue periodic statements under the Truth in Lending Act.
Products delivered through embedded infrastructure must now meet compliance standards originally built for traditional financial institutions. The systems behind the product — who touches the data, how decisions are made, how reporting is handled — are being brought under review.
BNPL may be the first domino. But the expectations this introduces for transparency, accountability, and audit-ready systems are cascading across embedded finance, leading firms to realize that architecture matters as much as the offer.
Regulated BNPL increases data obligations
To address these changing requirements, firms must understand how the rules translate into increased obligations around consumer data collection, storage, and ongoing reporting.
Affordability checks
Under the new rules, providers must run affordability checks before extending credit. That means collecting data on income, recurring expenses, and existing debts — information previously outside the scope of most embedded credit models. These requirements bring consumer-level underwriting into digital flows at checkout.
This borrower-level data must also now be stored in a way that supports regulatory oversight and institutional due diligence. BNPL loans are increasingly pooled into structured credit products and sold to asset-based finance (ABF) managers. These buyers depend on detailed borrower inputs to segment risk and model repayment behavior.
Transparency
Transparency is now a shared requirement across regulators and investors.
Platforms must demonstrate how they protect consumers, including how affordability was assessed, how terms were disclosed, and how refund mechanisms were handled. At the same time, they must prove that the data behind those decisions can stand up to audit. That means documenting how decisions were made, where the data came from, and how records are maintained over time.
Authorization
Authorization under the new regime introduces fees, oversight, and recurring obligations. What used to be informal processes (e.g., soft credit scoring) now require documentation, consistency, and formal reporting. For firms still relying on manual ingestion or loosely documented workflows, the compliance load will accelerate operating costs.
However, we do not see this as a deterrent to investment. Rather, it’s a sign of permanence. BNPL and asset-based finance are no longer fringe. They are maturing into regulated markets, and that creates long-term opportunity for firms that invest early in infrastructure.
The operational stakes are clear: Meeting transparency requirements depends on how well firms manage the flow of data. Those that build systems to collect, store, and report accurate information — quickly and consistently — will be in a stronger position with both regulators and investors.
Infrastructure modernization as a strategic response
Regulatory expectations are expanding into the systems firms use to make decisions. To meet changing expectations, firms should consider the infrastructure that supports them.
UK regulation puts questions around how data is ingested, where it’s stored, how it’s accessed, and whether it can be audited squarely on the table.
Regulators have also begun penalizing firms that mishandle their data. Poor quality data, or the inability to show where it came from, carries a similar risk to making a flawed decision.
Firms that want to operate in this environment will need to harden their infrastructure with clear technical controls:
- Data masking to protect consumer inputs during processing
- Encryption to secure data at rest and in transit
- Client-level data isolation to maintain strict separation in multi-tenant environments
- Audit trails that log decisions across ingestion, risk evaluation, and downstream reporting
Without these practical safeguards, firms will struggle to meet the standards now built into BNPL oversight.
Some firms have already started adapting. UK neobank Revolut, for example, moved core systems to Google Cloud to reduce latency and centralize its compliance architecture.iv The result was improved control over both internal processes and external reporting.
For embedded finance firms — especially those dealing with credit, payments, or structured product data — the upside of modernization is strategic. Infrastructure built for control delivers advantages beyond compliance: faster product development, lower friction with institutional partners, and more predictable reporting cycles.
The systems that meet the new regulatory standards also improve firms’ performance. The more disciplined the infrastructure, the faster a firm can move.
Preparing for new regulatory demands
BNPL regulation in the UK is a signal. Regulations are already under consideration in the U.S., and the fact that BNPL is being regulated at all confirms what the market has suspected for some time: This category isn’t experimental anymore.
That makes the infrastructure question relevant for every firm in the ecosystem — not just BNPL providers, but investment platforms, savings tools, and any product built on real-time data flows.
Firms need to treat their infrastructure the way they would treat any other regulated function: as something that must be mapped, monitored, and built to withstand scrutiny. That means visibility across ingestion, decisioning, and external reporting.
The most direct path forward starts with a system-level assessment:
- 1.Map the full lifecycle of regulated data — from where it enters the system to how it’s surfaced to regulators and investors.
- 2.Identify brittle points — manual steps, undocumented logic, or inconsistent formats that create compliance exposure.
- 3.Build enforcement into infrastructure — through masking, encryption, data lineage, and role-based access.
- 4.Automate reporting pipelines — so that disclosure isn’t just possible, it’s repeatable, accurate, and fast.
Delaying this work adds exposure across three fronts: higher compliance costs, risk of regulatory penalties, and erosion of institutional trust. Infrastructure that cannot explain itself becomes a liability.
Firms that move early will be positioned to scale with control, adapt to evolving requirements, and hold a clearer line of accountability across products, clients, and partners. In embedded finance, intelligently designed and built infrastructure is quickly becoming the key to unlocking competitive advantage.
Authored By
Rochelle Glazman
Rochelle is responsible for enabling go-to-market and growth strategies across sales, marketing, product, and client engagement. Before taking on this role, Rochelle was a Senior Pre-Sales Consultant, engaging with clients and prospects across the financial services industry. Prior to joining Arcesium, Rochelle spent over five years at BlackRock Aladdin servicing institutional asset managers and leading several implementation projects across North and South America. She graduated from Vanderbilt University with a degree in economics.
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[i] GOV.UK, May 2025. https://www.gov.uk/government/news/new-rules-to-end-buy-now-pay-later-wild-west-protect-millions-of-shoppers-and-drive-growth
[ii] Skadden, May 2025. https://www.skadden.com/insights/publications/2025/05/uk-announces-new-regime-to-regulate
[iii] Reuters, May 2024. https://www.reuters.com/markets/us/us-consumer-watchdog-will-apply-credit-card-rules-buy-now-pay-later-companies-2024-05-22/
[iv] Google Cloud. https://cloud.google.com/customers/revolut
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