Fintech giant Klarna is set to begin sharing buy-now pay-later (BNPL) information with credit reference agencies as the sector scrambles to get ahead of a regulatory clampdown expected this year.
Swedish-headquartered Klarna, which has around 13m customers in the UK, said that from 1st of June it will begin reporting the use of BNPL products by UK customers to credit reference agencies (CRAs) Experian and TransUnion.
The announcement from Klarna comes as BNPL firms look to increasingly tighten transparency and onboarding processes ahead of a regulatory swoop, expected later this year, as well as offering customers an alternative route to building a credit score without taking out a credit card.
Klarna UK boss Alex Marsh said the move will broaden choice for shoppers and save on fees.
“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,” said Alex Marsh, Head of Klarna U.K..
“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.”
BNPL information from Klarna will be filtered into consumer credit files from June but will not officially impact consumer credit scores until CRAs modernise their scoring mechanisms, which both TransUnion and Experian have committed to progressing, Klarna said.
The move comes as the sector braces for a regulatory clampdown after ex-FCA boss Chris Woolard outlined an “urgent” need for regulation in the space last year over fears shoppers were unknowingly taking on debt.
Marsh said taking action on credit scores showed the firm was moving to get ahead of regulation.
“This was a key area of concern highlighted in the FCA’s Woolard Review and we very much took to heart the advice from Chris Woolard at the time to, ‘not wait for regulations before making changes,’” he said.
Neil Kadagathur, Co-Founder and CEO of Creditspring, added her comments to the announcement saying: “Ever since payday loans have been driven out of the mainstream, BNPL has been viewed as the new wild west of the borrowing industry.
“Regulation is welcome but the misconceptions amongst borrowers, that BNPL is risk-free or isn’t a form of borrowing that can lead to debt, are a much bigger issue. Regulation won’t go far enough – lenders need to ensure they develop awareness amongst borrowers of the risks that BNPL poses.
“Borrowers must be protected – currently, they are in real danger of falling into another credit trap as they continue to rely on BNPL as a crutch to struggle through until payday. Worst-case scenario is that borrowers can end up receiving a knock on the door from a debt collector, but currently the vast majority are completely unaware this is even a possibility.”
