Klarna must start reporting customers to credit agencies before a crackdown on the “buy now, pay later” industry.
The Swedish payments giant said it would report purchases on its platform to companies such as Experian and TransUnion which hold data on the credit scores of around 50 million adults in the UK from of June.
The move comes as the booming Buy It Now Pay Later (BNPL) industry faces a crackdown from ministers and regulators who fear its products are encouraging people to spend more than they cannot afford it, which forces them to pay arrears.
Klarna allows consumers to pay for goods in three installments when checking out in an online store. He says he charges no interest or hidden fees for late payments.
However, the charity Citizens Advice said one in 10 ‘buy now, pay later’ users have been referred to debt collectors and warned the products can be a ‘slippery slope into debt’ .
Klarna said it would start reporting UK consumer purchases, including those “paid on time, late payments and unpaid purchases”, to provide the industry with “greater visibility” into usage BNPL products.
Alex Marsh, Head of Klarna UK, 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.”
The move means that shopping on Klarna will now affect the credit ratings of its UK customers.
Klarna has around 90m users and a $46bn (£34bn) valuation, making it Europe’s most valuable fintech start-up. It is expected to go public in the coming months.
Downing Street tried to convince the Swedish company to choose London over New York for an IPO.
The UK is struggling to attract tech companies, such as microchip designer Arm, despite the latter eyeing a Wall Street listing after a failed $40bn takeover deal.
Klarna, which is already Europe’s most valuable start-up, is expected to attract sovereign wealth funds and pension funds as new investors. It is targeting a valuation of $60 billion.
Despite promises of quick action early last year, the slow rollout of new regulations for BNPL products has frustrated charities and debt campaigners.
Critics argue that the buy-now-pay-later model encourages young people to spend beyond their means and have likened its business model to that of a payday lender.
Last October, Klarna overhauled its UK business before the crackdown, introducing a “pay now” feature so users could purchase items immediately through its systems and introducing stronger accessibility controls, a language clearer payment plan, easier to understand terms and conditions, improved complaints process and the removal of some fees.
Sebastian Siemiatkowski, the firm’s chief executive, said the regulations “will promote consistency, especially as we see more traditional lenders entering the industry who, as we all know, have a long history of finding dirty tricks to keep their clients in debt”.
Last year, he also told The Telegraph that he plans to introduce new features that will make Klarna more like a traditional bank.
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This notice was published: 2022-05-04 05:00:00