A credit report is a record of credit history that is maintained by credit agencies. Credit agencies use credit reports to help lenders assess your creditworthiness. credit reports contain information about your credit accounts, including the type of account, the date it was opened, the credit limit, the balance, and the payment history. Credit reports also include information about any late payments, collections, bankruptcies, or foreclosures. BNPLs are one type of credit account that is not typically included on credit reports. BNPLs are used to make purchases and then pay for them over time. BNPLs do not necessarily have a set repayment schedule like other credit accounts, so they have not typically been reported to credit agencies. Will Klarna be changing this?
Credit agencies in the United Kingdom will begin receiving reports from leading Buy Now, Pay Later vendor Klarna in a move that both helps consumers build credit and allows the BNPL industry to be more accepted in regulatory circles:
“The BNPL sector exploded during the pandemic and is expected be worth $166bn by 2023, according to GlobalData’s thematic research. As it has grown, the calls to bring it under stricter scrutiny have grown louder. Therefore, fintech industry experts are left unsurprised that Klarna is making this move and predict that others will soon follow in its footsteps.”
The moves in the UK match efforts in other countries, either led by the vendors or by credit agencies to bring BNPL in line with other traditional credit reporting activities.
“Nilesh Vaidya, executive vice president at Capgemini Financial Services, agrees, saying that the announcement today is the culmination of “two-year discussion, which aims to better safeguard consumers’ finances and prevent further debt.”
“As such, we may soon find that other BNPL providers will have to start playing by the same rules as many traditional banks, which will greatly impact how this service evolves and what new offerings are created,” Vaidya continues.”
The increasing availability and valuation of BNPL providers will continue to bring additional regulatory scrutiny and could result in additional BNPL providers proactively supporting credit reporting activities in additional countries.
Overview by Jordan Hirschfield, Director of Research at Mercator Advisory Group