Klarna strengthens credit checks in the U.K. as regulators crackdown on 'buy now, pay later

Klarna strengthens credit checks in the U.K.

October 19, 2021: -Swedish fintech firm Klarna said it is introducing several changes to its product in the U.K., as regulators are preparing to tighten regulation on the fast-growing “buy now, pay later” industry.

One of the most significant updates Klarna is implementing is more vigorous credit checks. The company said a new tool would let users share income and spending data from their bank accounts to determine whether they can afford future repayments. The feature is voluntary, a Klarna spokesperson said.

Unlike banks and credit card providers, Klarna is not conducting hard credit checks on its customers, which means their credit score shouldn’t show up on their credit history.

Klarna said it would also launch the ability for users to pay for things instantly in one go and more precise language at checkout, letting users know they are taking out a loan with the firm and penalized for missing a payment.

Klarna is one of the world’s most enormous buy now, pay later, or BNPL operators. Such services let shoppers split their purchases into monthly installments, interest-free especially. In 2020, about $97 billion of global e-commerce transactions were processed through a BNPL platform.

Major companies have leaped into the market, which includes PayPal, Square, and Mastercard.

While BNPL companies tout their offerings as a fairer alternative to credit cards, critics are concerned they may be encouraging people to spend more than they can afford. There are worries that users of these services could not be aware they are getting into debt.

The rapid growth of the sector in the coronavirus pandemic has prompted regulatory scrutiny in the U.K. The British government is expected to release a consultation on its plans this month.

Klarna CEO Sebastian Siemiatkowski conceded the previous month that the firm “could have done a better job” in the U.K., focusing on areas other than credit.

On Monday, “We firmly believe that most of the time, people should pay with the money they have, but there are certain times where credit makes sense,” Siemiatkowski said.

“The changes we are announcing mean that consumers are fully in control of their payments whether they pay now or pay later.”

Klarna, a regulated bank in Sweden, raised $3.7 billion in funding from investors, including Japan’s SoftBank, China’s Ant Group, and U.S. rapper Snoop Dogg. The firm was valued at nearly $46 billion and is expected to go public in two years.

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Klarna strengthens credit checks in the U.K.
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Klarna strengthens credit checks in the U.K.
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Swedish fintech firm Klarna said it is introducing several changes to its product in the U.K., as regulators are preparing to tighten...
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The Women Leaders
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