LONDON (CU)_Over the past few years, particularly since the beginning of the pandemic, consumers in the United Kingdom have been turning to the buy now, pay later (BNPL) credit to tackle their tight finances. In 2020, activities across the sector nearly quadrupled to a whopping £2.7 billion in transactions. This growing trend prompted concerns among regulators as customers continued to pile up debts worth billions of pounds. Their biggest concern was the fact that this system involves minimal credit checks, meaning it does not always offer a clear picture of BNPL plans you may hold with different companies, and so it is possible to bite off more than you can chew.
A Swedish fintech company has set out to tackle this issue, which could make buy now, pay later schemes a lot less appealing to customers. For the first time next month, Stockholm – based Klarna will start reporting UK customer debts to credit agencies. Following increased pressure from MPs and campaigners, the decision was made after two years of talks with the credit reference companies Experian and TransUnion. With 16 million customers in the UK, Klarna is a leading BNPL provider in the country. The firm will start sharing customer data with the two credit agencies from 1 June, thereby allowing credit card companies other lenders view the customers BNPL transactions as well.
Klarna says this provides an opportunity for customers who make payments on time to build a positive a credit history, thereby giving lenders the assurance that they use credit responsibly. “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,” Alex Marsh, the head of Klarna UK, said.
