Klarna is moving ahead of potential regulation in Buy Now, Pay Later (BNPL) in the U.K. The company announced in a blog post on May 4 that starting in June, the company will be providing information to U.K. credit agencies to help consumers build positive credit history.
The move is likely to appease regulators and policymakers in the U.K. that are worried about rising consumer debt and the effect of the accumulation of debt on young consumers.
BNPL remains largely unregulated in the U.K., Klarna and other BNPL providers don’t have the obligation to share information with credit agencies. Yet, Klarna, which has been working for two years with credit agencies Experian and TransUnion to update their systems to be able to receive BNPL data, has decided to begin reporting the use of BNPL products beginning June 1. The company will share data on timely and late payments as well as unpaid purchases, but it won’t include purchase attempts that are rejected.
Klarna’s decision to report to credit agencies will help consumers to build a positive credit history, but it may also help the company to entice consumers to use BNPL products instead of credit cards.
“It is alarming that U.K. consumers are still being forced to take out high-cost credit cards to demonstrate they can use credit responsibly and build their credit profile,” said Alex Marsh, Head of Klarna U.K.
The BNPL industry has been in the regulatory spotlight in the U.K. since last year when the Treasury launched a consultation in October to know more about these products and to assess whether regulation is needed. The results of the consultation may come later this year and could trigger a new consultation, this time from the Financial Conduct Authority (FCA), to regulate BNPL providers.
In February, the FCA already required four BNPL providers to redraft their terms, including those allowing them to terminate, suspend or restrict access to customer accounts for any reason without notice.
Klarna is proactively addressing areas of concern for regulators before any regulation is passed, probably in an attempt to avoid a regulatory pushback that other tech companies like Uber or Facebook have suffered in the past for moving too fast in some unregulated markets.
“We very much took to heart the advice from Chris Woolard at the time to, ‘not wait for regulations before making changes,’” Alex continued.
For instance, the company updated the text at the checkout to make clear that BNPL options are credit products, it partnered with a consumer group to make sure that BNPL terms and conditions are clear and easy to understand, and it also introduced an internal complaints adjudicator until the Financial Ombudsman Services is extended to BNPL products.
These changes go to the core of the concerns raised by regulators not only in the U.K., but elsewhere, and echoed those raised by the Consumer Financial Protection Bureau (CFPB) in the U.S. — increase transparency, reporting and disclosure requirements and more financial education for young consumers.
On this last point, educating consumers, the company announced on May 2 a new financial statement feature on its app that will give Dutch consumers full insight into their spending. The financial overview function, in the “Finance” tab, lets customers access tools like budgeting to let consumers set spend limits and categories, letting them separate things to see where their money’s going, and access to spending breakdowns.