Klarna International, one of the leading providers of buy now pay later services globally, announced a change in how they plan to conduct their business in the United Kingdom going forward, which will have significant implications for customers. Klarna plans to start reporting the use of its buy now pay later products to the credit bureaus (also known as credit reference agencies) in the United Kingdom. The company believes that this change will “protect customers, provide the industry with greater visibility of BNPL use, and give UK customers one less reason to use high-cost credit cards.” Klarna indicated in their press release that the change will allow the “vast majority” of the company’s 16 million customers in the UK to start demonstrating their credit worthiness to other lenders.
The change will go into effect on June 1, 2022. After this date Klarna will start reporting information on their buy now pay later customers purchases that are repaid on time or late. In addition they will report unpaid purchases for their Pay in 30 and Pay in 3 plans. Klarna will be reporting this credit information to the credit bureaus Experian and TransUnion. Importantly, this change will go into effect prospectively, meaning that only purchases that were made after June 1, 2022 will be reported. Payments related to purchases made before June 1, 2022 will not be reported to the credit bureaus.
Could This Buy Now Pay Later Policy Be Enacted in The US?
This is clearly the million dollar question. Klarna is definitely positioning this policy change as beneficial to consumers as it provides them with a new way to build credit. However it also introduces risk to consumers should they fall behind on their payments. Moreover, buy now pay later was originally a different type of credit in part because it didn’t require a hard credit check or the reporting of information to the credit bureaus. All of that said, we see no reason why Klarna will not opt to start reporting to the credit bureaus in the United States and think this action is sign of things to come.