Klarna announced its BNPL product will affect UK customers’ credit score

By Joy Dumasia

Klarna, a leading global retail bank, payments, and shopping service, announced that its UK customers would soon be able to build a positive credit history by using Klarna’s Buy Now Pay Later (BNPL) products. Klarna will begin reporting the use of BNPL products with the UK credit reference agencies (CRAs) to protect customers, provide the industry with greater visibility of BNPL use, and give UK consumers one less reason to use high-cost credit cards. Klarna’s BNPL products in the UK are interest- and fee-free and have inbuilt controls to prevent the accumulation of debt, making them a fairer alternative to traditional credit.  

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 demonstrate they can use credit responsibly and build their credit profile. 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.”  

Klarna will report UK consumer purchases paid on time, late payments and unpaid purchases for Pay in 30 and Pay in 3 orders made on or after 1 June 2022 to both Experian and TransUnion. As part of Klarna’s long-standing commitment to its consumers’ financial wellbeing, this will give the financial industry greater visibility on UK shoppers’ use of Klarna’s BNPL products, help to improve affordability assessments, and means Klarna consumers who make payments on time can build a positive credit history, showing lenders they use credit responsibly. 

Klarna has long championed greater visibility on the use of BNPL products in the UK, alongside other products they may use, as key to supporting better outcomes for consumers. However, the UK’s credit reporting infrastructure was built with traditional credit in mind, so Klarna has partnered closely with the CRAs in the UK over the past two years to help them update their systems to the point where they are now able to receive and process BNPL data in a fair and balanced way. 

Whilst reporting on the use of BNPL products will be reflected in UK consumer credit files from June 2022, they will not initially impact UK consumer credit scores as this requires further updates to the scoring mechanisms used by the CRAs; however, it is an important step towards this goal which both Experian and TransUnion are fully committed to progressing during 2022. Klarna will continue to ensure that consumer needs are central to everything decided throughout this process.   

This development should support wider efforts to drive better visibility of consumer borrowing and affordability assessments to help ensure consumers are not building up unsustainable debt with multiple providers. “We are pleased to help protect our UK customers and continue to cement our leadership in responsible lending, now the credit reference agencies are in a position to accept our data. 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,” Alex continued.  

Recently, IBS Intelligence reported that Klarna, a leading global retail bank, payments and shopping service that helps consumers save time and money, be informed and be in control of their finances, announced it is enabling banks to extend voluntary gambling blocks to open banking-driven payments powered by its subsidiary, SOFORT, helping protect hundreds of thousands of UK consumers.