Klarna, the Swedish buy now, pay later company, will begin reporting UK customer debts to credit agencies for the first time next month. This move is likely to heavily impact customer’s credit ratings from the onset.
It is understood that Klarna’s move is the result of almost two years of talks with two of the largest credit reference companies, TransUnion and Experian.
Now, more than ever, these buy now, pay later firms are facing growing pressure from MPs who argue that they allow consumers to fall into great sums of debt that they are unable to pay off.
Klarna is the leading buy now, pay later provider in the UK with over 16 million customers. From June, this customer data will be shared with both TransUnion and Experian. As such, credit card companies will thus be able to see all transactions, as well as any outstanding debts, when conducting credit checks on these consumers.
However, it is important to note that this will only begin to affect customer credit scores after 18 months. This consequently means that the introduction in June will not have any impact seen until the end of 2023.
Buy now, pay later products, allow customers to spread or delay the costs of their purchases. At current, the offering is not yet regulated in the UK.
Klarna’s agreement will mean that from next month, customer transactions on items including furniture, technology and food will be reported to TransUnion and Experian, putting pressure on buy now, pay later rivals to follow suit. This notably refers to services which offer smaller purchase schemes, as at current, most large purchase schemes are already reported to UK credit agencies and thus impact credit scores.
There are concerns however that Klarna’s move will turn customers away towards rivals, and instead, will be unlikely to put pressure on these rivals to follow suit. This would allow customers to hide any growing debt from credit reference companies, as well as credit card companies when conducting credit scores.
Klarna is focused on how the move will impact big banks. This is because Klarna’s responsible borrowers will now be able to build credit scores without the dangers associated with taking out high-interest credit cards, which is the typical move and one that is encouraged by city regulator, the FCA.
Klarna told the Guardian that “Consumers who make payments on time can build a positive credit history, showing lenders they use credit responsibly.”
Alex Marsh, the head of Klarna UK, said: “It is alarming that UK consumers are still being forced to take out high-cost credit cards to demonstrate they can use credit responsibly and build their credit profile. That will start to change on 1 June this year as 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.”