Klarna is to start reporting its customers to credit agencies ahead of a crackdown against the “buy now, pay later” industry.
The Swedish payments giant said it will report purchases on its platform to companies such as Experian and TransUnion that hold data on the credit scores of about 50m adults in the UK from June.
The move comes as the burgeoning buy-now-pay-later (BNPL) sector faces a crackdown from ministers and regulators over fears its products encourage people to spend more than they can afford, sending them into arrears.
Klarna allows consumers to pay for goods in three chunks when they come to check-out at an online store. It says it does not charge any interest or hidden fees for late payments.
However, consumer charity Citizens Advice has said that one in 10 “buy now, pay later” users have been referred to debt collectors and has warned that the products can be a “slippery slope into debt” .
Klarna said it will start reporting UK consumer purchases, including those “paid on time, late payments and unpaid purchases”, to provide the industry with “greater visibility” of the use of BNPL products.
Alex Marsh, Klarna’s UK head, said: “The vast majority of the 16m 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.”
The move means that purchases on Klarna will now affect its UK customers’ credit scores.
Klarna has around 90m users and a valuation of $46bn (£34bn), making it Europe’s most valuable fintech start-up. It is expected to make its stock market debut in the coming months.
Downing Street has tried to convince the Swedish company to pick London rather than New York for a flotation.
The UK has been battling to attract tech companies, such as microchip designer Arm, although the latter is eyeing a Wall Street listing after a $40bn takeover deal fell through.
Klarna, which is already Europe’s most valuable start-up, is likely to attract sovereign wealth and pension funds as new investors. It is eying a valuation of $60bn.
Despite pledges of swift action at the start of last year, the slow rollout of new regulation for BNPL products has left debt charities and campaigners frustrated.
Critics argue that the buy-now-pay-later model encourages young people to spend beyond their means and have likened its business model to that of a payday lender.
Last October, Klarna overhauled its UK business ahead of the crackdown, introducing a “pay now” function so that users can buy items immediately through its systems and introducing stronger affordability checks, clearer checkout language, easier to understand terms and conditions, an improved complaints process and the removal of certain fees.
Sebastian Siemiatkowski, the company’s chief executive, has said that regulation will “drive consistency, especially as we see more traditional lenders entering the sector who, as we all know, have a long history of finding dirty tricks to keep their customers in debt”.
Last year, he also told the Telegraph that he was planning on introducing new features that will make Klarna more similar to a traditional bank.