Klarna is giving UK consumers the option to opt out of using credit to make their purchases. This launch comes on the heels of a meeting between the Swedish company’s CEO and Co-founder, Sebastian Siemiatkowski, and Andrew Griffith MP, UK Economic Secretary to the Treasury—who gave Klarna the idea.
UK Consumers Have Racked Up Millions in BNPL Debt
Concerns have been raised against the rise of consumer debt due in part to the use of BNPL platforms. Debts have reached unmanageable levels worldwide, but particularly in the UK, where consumers have accumulated £4.9 billion in debt in just the first four months of 2023.
“As a leader in responsible credit, we always put our customers’ interests first,” said Sebastian Siemiatkowski in a prepared statement. “Unlike credit card companies, who push you to put all your purchases on credit, we believe that consumers should only use credit when it makes sense for them. That’s why I loved Andrew’s suggestion of a voluntary credit ‘opt out’, so people are in control of their finances.”
Griffith added: “As this government seeks to protect UK borrowers by bringing forward proportionate regulations for Buy Now, Pay Later products, I welcome this initiative which shows how a responsible business can use innovation to help protect vulnerable customers.”
To activate the credit opt out feature, consumers can access the Klarna app, where they will then go into the settings tab to select “deactivate credit.” As soon as the credit is deactivated, they’re then re-routed to a resource page where they can get information on addressing indebtedness. Consumers will no longer be able to use Klarna’s Pay in 30, Pay in 3, or any additional financial products.
If consumers choose to reinstate Klarna’s credit services, they will need to reach out to its customer service teams.
As BNPL continues to gain popularity worldwide, consumers can make big-ticket purchases immediately and conveniently, without having to shoulder a large, up-front cost. However, the surge in popularity has also contributed to a surge of debt, which has wreaked havoc in many consumers’ financial well-being.
As regulators continue to seek ways to protect financially vulnerable consumers, there are are more providers that are taking the necessary steps to offer responsible lending practices, as we have covered here.
“Opt-out is a win for consumers as it helps those that are struggling with indebtedness, however, it is only putting a band aid on a wound of industry wide problems with loan stacking and credit risk assessment,” said Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research.
“We expect other BNPL vendors to follow, especially as regulators continue to monitor the evolving BNPL market,” he said.