Since this blog was written in January 2020, we have changed our policy on sharing data on BNPL purchases with Credit Reference Agencies (CRAs) in the UK. More on this update can be found here.
We are leaving the original blog post up for transparency.
Luke Griffiths, General Manager at Klarna UK
You may have seen that we’ve been in the news recently but not for reasons that we would like or, with facts that are even correct! So here is it, a response from Klarna, from the team on the inside who really know how our products work.
Whilst we cannot comment on the methodology for the research conducted on behalf of comparethemarket.com, we have provided the following response which details corrections regarding headlines that refer to ‘Klarna style’ products and the processes we really adopt.
The ‘Buy Now Pay Later’ category encompasses a wide range of financial products and companies. These range from deferred invoice payments, to traditional store cards and regulated credit offerings. Each of these is unique, with a variety of associated terms and conditions which will have different impacts on a person’s credit score.
Klarna’s ‘Pay later’ products are ‘Pay 30 days later’ and ‘Instalments’ (formerly ‘Pay in 3’) which have no interest or fees, ever. These two products are Klarna UK’s most widely used and are exempt from a regulatory point of view, whereby consumers do not enter into a regulated credit agreement with Klarna.
To use ‘Pay 30 days later’ or ‘Instalments’, a soft credit check is undertaken by Klarna on the customer. This does not leave a record on their credit file that will either impact the customer’s credit score or is visible to other lenders. For a customer’s credit file to be impacted, a lender would have to submit missed payment information to the credit reference agency (CRA). Klarna does not report missed payments to the CRA in relation to these products. It is therefore not accurate to say that “Klarna’s ‘Pay later’ schemes damaging millions of shoppers’ credit scores”. To date, a customer’s credit score has not been impacted by using Klarna’s ‘Pay later’ products even if they have failed to pay on time.
‘Financing’ (formerly known as Slice it) is Klarna’s only regulated credit product, with payment plans typically from 6-36 months. Similar to all traditional finance providers who offer products of this nature, with the customer’s consent a hard credit check is undertaken. In this instance, there will be a record of the search on the customer’s credit file with the CRA. The shopper must proactively complete, be approved for and sign a regulated credit agreement, where they are advised of the implications of non-payment prior to application. If a customer fails to pay on-time for this, the credit reference agencies are informed which may have an impact on their credit score.
Less than 0.1% of Klarna UK customers have had their credit score impacted as a consequence of missing payments.