Klarna giant “Buy now, pay later” says it will start reporting credit bureaus in the UK on customer use of its products to credit bureaus in the UK, in preparation for decisions to deter the sector for fear that it involves young people in debt .
From June 1, the Swedish technology company will share information on whether the British repaid the loan on time in installments or lag behind in payments TransUnion and Experianwhich means that such data will begin to appear in their credit reports. Klarna has about 16 million users in the country.
This step will apply to the company’s services “pay for three” and “pay for 30”, which allow customers to repay debt in three months or 30 days, respectively, without accrual of interest. Klarna is already reporting long-term interest-bearing loan agreements for six to 36 months.
Clarna said the changes will not immediately affect customers’ credit scores – currently most BNPL services do not affect a person’s credit rating. However, after 12-18 months, lenders can use Klarna when approving an application for a loan or mortgage. Purchases made before June 1 will not be affected, Clarna said.
The development sets a major precedent for the Buy Now, Pay Later or BNPL sector, which has largely flourished thanks to a smoother application process and a lack of regulatory oversight. This can prevent buyers from using the company’s services, as it will now affect their credit history.
“Credit reporting is a two-sided sword because it can be used not only to punish borrowers, but also to encourage and reward healthy financial habits,” said CNBC’s Gwero Kiwana, product manager at 11: FS in the UK.
“Reporting Klarna’s reports to credit scoring agencies could be used by users of thin files, such as immigrants and underfunded banks, as a tool to build credit. This would boost BNPL’s proposition against expensive credit cards if it allowed customers to improve their credit score the cost of a good repayment. “
BNPL companies are facing retribution in the UK and other countries as regulators seek to crack down on such services amid concerns they encourage consumers – Generation Z and in particular Millennials – to spend more than they can afford.
Last year the British government announced this regulate BNPL products after the inspection it was found that every 10th customer of a large bank that uses such services already had debt. The rules have not yet been approved, but are expected to take effect by 2023.
Meanwhile, the United States has a Bureau of Financial Protection investigation firms Klarna, Affirm and other BNPL because of worries they push people into debt.
Clarna said that although UK regulation was relevant to its decision to report data to major credit agencies, the company had been working on the changes for two years. The firm says it hopes its competitors will follow suit.
“This will allow other suppliers to see if someone is oversaturated using Klarna; or, equally, if other suppliers connect, we will be able to see if consumers have switched using these suppliers,” said a Klarna spokesman. CNBC.
A Clearpay spokesman said the firm is reconsidering its approach to credit checks, but recognizes that “appropriate and proportionate credit reporting can add value to customers.”
“Our priority is to ensure that we create a solution that protects customers and provides them with the best outcome,” a CNBC spokesman said.
PayPal was not immediately available for comment when contacted by CNBC.
Klarna often opposes the credit card industry for charging heavy interest and a fee for late payments.
“It is alarming that consumers from the UK are still forced to take expensive credit cards to demonstrate that they can use credit responsibly and build their credit profile,” Klarna UK chief Alex Marsh said on Wednesday.
“This will start to change on June 1 this year, as the vast majority of the UK’s 16 million consumers who make Klarna BNPL payments in full and on time will be able to demonstrate their responsible use of credit to other lenders.”
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