BNPL to impact consumer credit scores after Klarna move

By

Nigel TAYLOR

Published
May 4, 2022

Financier Klarna is to begin reporting its customers to credit agencies from June, ahead of a crackdown affecting the growing buy-now-pay-later (BNPL) industry.

The company said it will report purchases on its platform to companies such as Experian and TransUnion that hold data on the credit scores of about 50 million adults in the UK, reporeds The Telegraph.

That means purchases on Klarna will now affect its UK customers’ credit scores.

The move comes as the fast-expanding BNPL sector faces a crackdown from government and regulators over fears its products encourage people to spend more than they can afford.

Klarna allows consumers to pay for goods in three chunks when they come to check out at an online store. It says it does not charge any interest or hidden fees for late payments.

However, consumer charity Citizens Advice told the newspaper that one in 10 BNPL users have been referred to debt collectors and has warned that the products can be a "slippery slope into debt".

Klarna said it will start reporting UK consumer purchases, including those “paid on time, late payments and unpaid purchases”, to provide the industry with “greater visibility” of the use of BNPL products.

Alex Marsh, Klarna’s UK head, said: “The vast majority of the 16 million UK consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.”

Klarna claims around 90m users and a valuation of $46 billion (£34 billion), making it Europe’s most valuable fintech start-up.

Last October, Klarna overhauled its UK business ahead of the crackdown, introducing a ‘pay now’ function so that users can buy items immediately through its systems and introducing stronger affordability checks, clearer checkout language, easier to understand terms and conditions, an improved complaints process and the removal of certain fees.

Sebastian Siemiatkowski, the company’s chief executive, has said that regulation will "drive consistency, especially as we see more traditional lenders entering the sector who, as we all know, have a long history of finding dirty tricks to keep their customers in debt”.

Last year, he also told the Telegraph that he was planning on introducing new features that will make Klarna more similar to a traditional bank.