The buy now, pay later company Klarna will start reporting UK customer debts to credit agencies for the first time next month, in a move that could affect shoppers’ credit ratings from 2023.
The move is understood to be the result of two years of talks with the credit reference companies Experian and TransUnion, and comes as buy now, pay later (BNPL) firms face pressure from MPs and campaigners who say they should prevent customers from taking on more debt than they can afford.
The Swedish financial company, which is the leading BNPL provider in the UK with 16 million customers, will start sharing customer data with the two agencies from 1 June, meaning credit card companies will be able to see transactions and debts when conducting formal checks on potential borrowers.
However, debts and repayments will only start affecting customer credit scores after 18 months, meaning the change will not have any 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 sector may not come into effect until 2023.
But Klarna’s agreement, which will mean reporting customer transactions on items such as clothes, food and furniture to the two firms from July, will put pressure on rivals to follow suit. Most large purchase schemes, which allow customers to spread costs over six to 36 months, are already reported to credit agencies.
The agreements could result in some customers shunning Klarna and turning to rival BNPL providers in order to hide mounting debts from credit card companies and credit reference agencies.
However, Klarna does not believe many customers will be deterred, and instead is focused on how the move will deal a further blow to big banks, since responsible borrowers will be able to build credit scores without taking out high-interest credit cards.
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Klarna said: “Consumers who make payments on time can build a positive credit history, showing lenders they use credit responsibly.”
Alex Marsh, the 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.”