Klarna is stepping up credit score checks within the UK as regulators take motion towards “purchase now, pay later”

The Klarna logo that is displayed on a smartphone.

Rafael Henrique | SOPA Pictures | LightRocket via Getty Images

LONDON – Swedish fintech firm Klarna announced on Monday that it is rolling out a number of changes to its product in the UK as regulators prepare to “buy now, pay later” regulations for the fast-growing industry tighten.

One of the biggest updates that Klarna implements are stricter credit checks. The company said a new tool will allow users to share income and expense data from their bank accounts to see if they can afford future repayments. The function is voluntary, said a Klarna spokesman.

In contrast to banks and credit card providers, Klarna does not perform tough credit checks on its customers, which means that their creditworthiness should not be shown in their credit history.

Klarna said it will also introduce the ability for users to pay for things instantly in one step, as well as clearer checkout language letting users know that they are taking out a loan with the company and will be fined for failing to make a payment can.

Klarna is one of the world’s largest buy now, pay later or BNPL operators. Such services allow buyers to split their purchases into monthly installments, which are usually interest-free. In 2020, approximately $ 97 billion of global e-commerce transactions were processed through a BNPL platform.

Big companies have made a leap into the market, including PayPal, Square, and Mastercard.

While BNPL companies tout their offerings as fairer alternatives to credit cards, critics fear that they may encourage people to spend more than they can afford. There is also concern that the users of these services will not know that they are in debt.

The sector’s rapid growth during the coronavirus pandemic has led to regulatory scrutiny in the UK. The UK government is expected to launch a consultation on its plans later this month.

Sebastian Siemiatkowski, Klarna’s CEO, admitted last month that the company “could have done a better job” in the UK by focusing on areas other than credit.

“We strongly believe that most of the time people should pay with the money they have, but there are times when credit makes sense,” Siemiatkowski said in a statement on Monday.

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

Klarna, a regulated bank in Sweden, has so far raised a total of $ 3.7 billion in funding from investors such as Japan’s SoftBank, China’s Ant Group and US rapper Snoop Dogg. The company was last valued at nearly $ 46 billion and is expected to go public in the next year or two.

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