The shopping and payments service Klarna will start to report the use of the buy now pay later service to UK credit reference agencies from June.

The service will begin to report customer purchases paid on time, as well as late and unpaid purchases for the “pay in 30” and “pay in three” options.

This will come into effect for orders made on or after June 1, according to Experian and TransUnion.

Klarna has said the move will protect customers and will also give the industry greater visibility of buy now pay later use. This will in turn help to improve affordability assessments.

The vast majority of the 16 million 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.

Hereford Times: Klarna has said this move will protect customers (PA)Klarna has said this move will protect customers (PA)

Alex Marsh, head of Klarna UK said: “It is alarming that UK consumers are still being forced to take out high cost credit cards to demonstrate they can use credit responsibly and build their credit profile.

“That will start to change on June 1 this year as the vast majority of the 16 million 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.”

Concerns over heightened Klarna use 

While reporting on the use of by now pay later products will be reflected on consumer credit files from June 2022, it will not initially impact upon UK consumer credit scores as this requires further updates to scoring mechanisms, Klarna said.

It said other changes previously announced include updated text at checkouts to make it clear that BNPL options are credit products, with consequences for missed payments and the introduction of an internal complaints adjudicator.

In general, concerns have been raised over the growth of popularity for these services. While they help people avoid interest on their borrowing, many build up a significant amount of debt using them as an option when online shopping.

The Woolard Review previously found the use of buy now, pay later products nearly quadrupled in 2020, amounting to £2.7 billion.

In February, the Financial Conduct Authority (FCA) said some BNPL firms had agreed to change terms in their customer contracts to make them fairer and easier to understand.

The UK Government plans to change the law to bring some forms of unregulated BNPL products into FCA regulation.