May 4, 2022

Klarna’s fairer alternative to traditional credit will help UK consumers build a positive credit history from June

  • UK consumers can build a positive credit history through responsible use of Klarna’s BNPL products. 
  • Klarna will further protect UK consumers from building up multiple lines of credit by reporting use of BNPL products and missed payments with UK credit reference agencies.
  • Klarna has not waited for regulation in the UK before introducing major policy changes that support consumers and provide greater visibility on the use of BNPL products.

London, 4 of May, 2022 – Klarna, a leading global retail bank, payments, and shopping service, today announced that its UK customers will soon be able to build a positive credit history by using Klarna’s Buy Now Pay Later (BNPL) products. Klarna will begin reporting use of BNPL products with 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. 

“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,” said Alex Marsh, Head of Klarna U.K., “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. 

Klarna has previously announced a suite of changes in the UK designed to proactively address areas of concern highlighted in The Woolard Review, including:

  • Updated text at the checkout to make it absolutely clear that BNPL options are credit products, with consequences for missed payments.
  • Partnered with the consumer group, Fairer Finance, to make sure that BNPL terms & conditions are clear, simple and easy to understand.
  • Improved real-time credit decisions and affordability checks by providing consumers with the option to share their bank details using Klarna’s world-leading open banking network. 
  • The introduction of an internal complaints adjudicator which acts as an interim step until the jurisdiction of the Financial Ombudsman Services is extended to include Buy Now Pay Later products. 

Klarna will ensure UK consumers are fully aware of the change in policy before they take effect in June 2022 through the following measures:

  • Updated text in marketing disclosures, the purchase flow and post-purchase communications clearly signposting these changes
  • Updated merchants’ marketing guidelines
  • Information in the Klarna app
  • Training for customer support staff to answer questions on the matter
  • Additional resources and information on the Klarna blog and consumer newsletters

Note to editors:

  • The reporting will be effective on all new purchases made in the UK using Klarna Pay in 3, Pay in 30, in app shopping and Klarna Card from 1 June onwards. 
  • Purchases made before 1 June will not be reported; neither will payments relating to purchases made before 1 June. 
  • While information on UK payment performance will be visible to other lenders through a UK consumer’s credit report, Experian and Transunion have further analysis and updates to make to their scoring mechanisms before BNPL transactions have a direct impact on credit scores. Klarna will continue actively partnering with them to ensure that any future impact on credit scores is fair and proportionate. 
  • Purchase attempts which are rejected will not be reported to credit reference agencies.
  • Payments made through Klarna Financing in the UK are already reported to credit reference agencies; there is no change to this. Klarna Financing is a point of sale financing option to spread the cost of larger purchases over 6 - 36 months.
  • Klarna currently works with the credit reference agencies Experian and TransUnion in the UK.