“Buy now and pay later” giant Klarna begins reporting data on customer product use to UK credit bureaus, curbing the sector for fear of incurring youth debt. He said he was preparing for the next regulation aimed at.
Beginning June 1, Swedish fintech companies will share information on whether the British have repaid the installment loan on time or have been late. TransUnion When ExperianThat is, such data will be displayed in the credit report. Klarna has about 16 million users in the country.
This move applies to companies’ “three-payment” and “thirty-payment” services that allow customers to repay their debt in three months or thirty days, respectively, without accruing interest. Klarna has already reported data on long-term loan agreements of 6 to 36 months, which incur interest.
Klarna said the customer’s credit score will not be immediately affected by the change. Currently, most BNPL services do not affect an individual’s credit score. However, after 12-18 months, the lender will see your Klarna usage when you approve your loan or mortgage application. Purchases made before June 1st will not be affected, Klarna said.
This development sets a major precedent for the early purchase, postpay, or “BNPL” sector, which is not a little prosperous thanks to a smoother application process and lack of regulatory oversight. It can discourage shoppers from using the company’s services. This is because it affects the shopper’s credit history.
“Credit reporting is a double-edged sword in that it can be used not only to punish borrowers, but also to incentivize and reward sound financial practices,” said FinTech consultancy 11: FS Product Manager, UK. Gwera Kiwana told CNBC.
“Klarna reporting to credit scoring agencies could be used by thin file users such as immigrants and underbanks as a credit building tool. If this gives customers the opportunity to improve their credit, BNPL’s Offers are stronger than high-value credit cards. Score with good repayment behavior. “
BNPL companies are cracking down on such services in the UK and other countries amid concerns that regulators are encouraging consumers, especially Gen Z and Millennials, to spend more than they can afford. I’m facing a calculation because I’m trying.
Last year, the British government announced it Regulate BNPL products As a result of one review, one in ten customers of a major bank using such a service was already overdue. The rule has not yet been approved, but will come into effect by 2023.
On the other hand, in the United States, the Consumer Finance Protection Agency Survey of Klarna, Affirm and other BNPL companies Concerns that they are driving people into debt.
Klarna said UK regulations are related to the decision to report data to major credit bureaus, which the company has been working on for two years. The company says it wants its competitors to follow suit.
“This allows other providers to see if someone has overextended themselves with Klarna, or similarly, when other providers join, consumers use them. You can see if you’ve expanded yourself too much, “said a Klarna spokeswoman. CNBC.
A Clearpay spokeswoman said the company is considering an approach to credit research, but recognizes that “appropriate and proportional credit reporting can add value to customers.”
“Our priority is to ensure that we create a solution that protects our customers and delivers the best possible results,” a spokeswoman told CNBC.
PayPal wasn’t able to get immediate comments when contacted by CNBC.
Klarna often opposes the credit card industry to land shoppers with tedious interest and late payments.
Alex Marsh, UK boss at Clarna, said in a statement Wednesday, “We still bring out high-value credit cards to demonstrate that UK consumers can use their credits responsibly and build their credit profiles. I’m worried that I’m forced to do that. “
“It will begin to change on June 1, this year, as the majority of the 16 million UK consumers who pay the full amount of Klarna BNPL on time can show other lenders the responsible use of credit.”