July 2026 BNPL regulation and the future of retail finance

Buy Now Pay Later (BNPL) has grown rapidly in recent years, becoming a familiar payment option for many shoppers at checkout.

However, interest-free credit has long played a significant role in retail, particularly for higher-value purchases. In fact, prior to the growth of BNPL, it accounted for a substantial proportion of retail finance transactions in sectors such as furniture and home improvement.

While BNPL has increased awareness of flexible payment options, it has largely expanded, rather than replaced, the use of existing finance models. With regulation expected to come into force in July 2026, the retail finance landscape is entering a new phase.

The main retail finance options customers encounter

Most retail finance solutions fall into a small number of broad categories. At Novuna Consumer Finance, retailers typically offer a mix of interest-free credit, interest-bearing credit and Buy Now Pay Later, each designed to support different purchasing journeys.

Alongside these, some retailers also offer promotional structures such as deferred interest finance, which provide another way for customers to spread the cost.

Here’s how these options differ:

1. Buy Now Pay Later (BNPL)

BNPL allows customers to spread the cost of a purchase by deferring payment for a set period - often several months.

Why customers like it
BNPL can be appealing because of its simplicity and flexibility. In some cases, customers can receive their purchase straight away while delaying repayment, giving them additional breathing room when making a decision.

In other sectors, such as kitchens or furniture, BNPL can offer a different kind of benefit. Customers may not take immediate delivery but instead use the deferred payment period to ensure installation is complete and they are happy with the finished result before making any payments. This flexibility can help build confidence in higher-value or more complex purchases.

Considerations
BNPL is typically best suited to short-term deferral, rather than longer repayment plans. For larger purchases, customers may prefer options that offer predictable monthly repayments over a longer period.

For retailers, BNPL often works best as part of a wider finance offering rather than as a standalone payment option.

2. Interest-free credit

Interest-free credit allows customers to spread the cost of a purchase over fixed monthly instalments without paying any interest, provided repayments are made as agreed.

Why customers like it
The appeal is straightforward: customers can spread the cost without paying more than the original purchase price. Predictable monthly payments can also make larger purchases feel more manageable.

There is also a strong psychological benefit. Customers often feel they are getting a better overall deal, as they can access a higher-value product without paying any additional cost. In many cases, this can deliver a similar sense of value as a discount - without reducing the headline price.

Considerations
From a retailer perspective, interest-free credit is often used as a powerful promotional tool to drive sales and increase basket size.

Unlike blanket discounting, it also offers greater control. Retailers can apply interest-free offers selectively, for example to specific products, ranges or higher-margin items, allowing them to support conversion while protecting overall profitability.

However, it may involve a subsidy from the retailer, which is why some businesses balance it alongside other finance options.

3.Interest-bearing credit

Interest-bearing finance works similarly to a traditional loan, allowing customers to spread the cost through fixed monthly repayments that include interest. As a regulated credit product, it can also offer additional consumer protections such as Section 75 protection on qualifying purchases, which can provide added reassurance when making higher-value purchases.

Customers receive their goods immediately and repay the balance over an agreed term.

Why customers like it
Interest-bearing credit often allows customers to spread payments over a longer period, helping reduce monthly repayment amounts. This can make higher-value purchases more accessible.

The structured nature of repayments, combined with the reassurance of regulated credit, can also give customers confidence when committing to larger purchases.

Considerations
Because interest is charged, customers will pay more overall than the original purchase price. However, the structure offers flexibility and affordability for larger purchases where longer repayment terms are helpful.

For retailers, interest-bearing credit can sometimes provide a cost-neutral finance option, as the interest paid by the customer offsets subsidies that might otherwise be required.

4. Deferred interest finance

Another structure sometimes used in retail finance is deferred interest finance. Under this model, customers are given a defined period (for example, 12 months) to repay the balance interest-free. If the full amount is repaid within that period, no interest is charged.

However, if any balance remains once the promotional period ends, the agreement converts to an interest-bearing product and interest becomes payable.

Why customers like it
Deferred interest offers customers the flexibility to repay quickly and avoid interest entirely. It can also be particularly appealing for purchases with longer lead times, such as fitted furniture or home improvements. Customers can ensure everything is delivered and completed to their satisfaction before making any payments.

For some customers, it also provides a useful way to manage cash flow. Those who have the funds available may choose to keep their money in savings for longer, before paying off the balance in full ahead of the interest-free period ending.

Considerations
Because the promotional period is time-limited, clear communication is essential so customers understand when interest may apply.

For retailers, this type of structure can provide an additional promotional lever while still offering flexibility for customers.

How purchase psychology varies by sector

When BNPL and other credit options sit on a more even footing, retailers may start thinking less about which product is trending and more about which type of finance best suits the psychology of the purchase.

Different sectors often see different customer motivations, and those motivations can influence which finance structures resonate most strongly.

Furniture

Furniture purchases are often planned and considered but still carry an element of personal taste and timing. Customers may be upgrading a space or responding to a life event such as moving home.

In these cases, interest-free credit with clear monthly payments can be particularly appealing. It allows customers to spread the cost without increasing the overall price, reinforcing the perception of good value on a larger purchase.

At the same time, BNPL or deferred interest options can also play a role - particularly where customers want to secure an item quickly or align payment with delivery.

Home improvement

Home improvement purchases - such as kitchens, bathrooms or larger renovation projects - are typically higher value and longer-term in nature. Because of this, customers often look for structured, predictable repayment options that feel familiar and manageable over time.

In these situations, interest-bearing credit can be particularly relevant. The ability to spread payments over a longer period, with fixed monthly repayments, mirrors other major financial commitments such as car finance or mortgages. This can help customers feel more comfortable committing to a significant investment.

Reassurance also plays an important role. Finance options that allow payment to align with project completion, such as BNPL or deferred interest, can help build confidence that the finished result meets expectations before repayments begin.

Outdoor living and seasonal purchases

For products such as garden furniture, hot tubs or outdoor living equipment, timing can play a significant role in the decision to buy.

Customers may want to enjoy the purchase immediately, particularly if it’s linked to seasonal events such as warmer weather or summer entertaining.

In these situations, BNPL or deferred payment options can feel attractive because they allow customers to experience the benefits first and worry about repayment later.

Jewellery and luxury purchases

Purchases in sectors such as jewellery can sometimes be driven by emotion, special occasions or a desire for something meaningful.

Here, customers may place greater emphasis on perceived value and transparency. Interest-free credit can work well in these situations because it allows customers to spread the cost without feeling that the purchase itself has become more expensive through interest charges.

Why offering a range of finance options matters

As the regulatory environment evolves, the conversation around retail finance may shift away from individual payment trends and towards how different options support different purchasing journeys. For example:

• BNPL can help accelerate purchasing decisions where customers want short-term flexibility
• Interest-free credit can help customers spread the cost of higher-value purchases without additional charges
• Interest-bearing finance can support longer repayment terms for larger purchases
• Deferred interest promotions can encourage quicker repayment while maintaining flexibility

In practice, many retailers find that offering a combination of finance options helps them serve a wider range of customers and purchasing behaviours.

A changing but evolving retail finance landscape

BNPL regulation will undoubtedly change the retail finance environment. But rather than reducing choice, it may simply bring greater consistency across how different forms of credit are offered.

For retailers, the opportunity lies not just in offering finance, but in understanding which options best support different types of purchase and customer behaviour.

As we’ve explored, the most effective finance strategies are often those that align with the context of the purchase - whether that’s short-term flexibility, clear monthly affordability, or reassurance for higher-value, longer-term investments.

Retailers who take a more strategic, sector-aware approach to finance, offering the right mix of options at the right time, may be better positioned to support conversion, increase average order value and meet evolving customer expectations.

If you’re looking to review your retail finance strategy or explore how different options could support your business, Novuna Consumer Finance can help you build an approach tailored to your customers and your sector.