The company buys now, pays later, Klarna company, will begin reporting UK customer debts to credit bureaus for the first time next month, in a move that could affect buyers’ credit ratings starting in 2023.
The move is intended as the result of two years of talks with credit reference firms Experian and TransUnion, and comes as companies buy now, pay later (BNPL) come under pressure from lawmakers and activists who say they should stop customers to take on more debt than they can afford.
The Swedish finance company, which is the UK’s leading BNPL provider with 16 million customers, will start sharing customer data with the two agencies from June 1, meaning credit card companies will be able to see transactions. and debts during formal checks on potential borrowers.
However, debts and repayments will only begin to affect customer credit scores after 18 months, meaning the change will have no formal impact until the end of 2023.
BNPL products, which allow customers to delay or spread the cost of purchases, are not yet regulated in the UK and new rules for the burgeoning industry may not go into effect until 2023.
But Klarna’s deal, which will mean reporting customer transactions on items like clothing, food and furniture to the two companies starting in July, will put pressure on rivals to follow suit. Most large purchasing schemes, which allow customers to spread costs over six to 36 months, are already reported to credit bureaus.
The deals could cause some customers to shun Klarna and turn to rival BNPL suppliers to hide the escalating debts of credit card companies and credit reference agencies.
However, Klarna doesn’t believe many customers will be discouraged, and instead focuses on how the move will deal a further blow to big banks, as responsible borrowers will be able to build credit scores without requiring high-interest credit cards.
Klarna said, “Consumers who make payments on time can build a positive credit history by showing lenders that they use credit responsibly.”
Alex Marsh, head of Klarna UK, said: “It is alarming that UK consumers are still being forced to take out high-cost credit cards to show they can use credit responsibly and build their credit profile. The situation will begin 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. “