Klarna explains that it supports the “principle” of sharing data with credit bureaus, and they do share data with bureaus in the UK.
They are not sharing data in the US because they claim that the bureaus “do not have proper models to responsibly process the data and ensure good consumer outcomes.”
As noted in a blog post by Klarna, the credit models used today “were built decades ago and calculate data based on monthly payments, long-term loans, and open lines of credit. But BNPL does not fit into these categories.”
Klarna also mentioned that BNPL has “a bi-weekly payment cycle, is a short-term (6 week) product, and since each transaction is underwritten – unlike a credit card – it is not an open line of credit.”
Logic would dictate that reporting positive repayment rates – “like the 96% of Klarna BNPL users that pay on time – would improve a consumer’s credit score, but the large credit bureaus continue to use outdated FICO and Vantage models that do not properly account for BNPL data.”
In fact, if on time BNPL payments were “factored into credit scoring today, consumers could see a significant drop in their credit score.”
Recently, Apple announced a partnership with Experian in which Apple will “start providing their BNPL data to the bureau.”
Importantly, Experian is not going “to incorporate that data into a consumer’s credit report because their models can’t properly account for that data.”
As there is little clarity on the potential long-term impacts to the consumer, we believe this approach is too risky “with possible negative impacts to consumers’ credit score and financial health.”
Commenting on whether Klarna is encouraging “phantom debt” by not reporting to bureaus, the Fintech firm notes:
“No, absolutely not, which is evident in our 99% repayment rate globally. We perform strict eligibility assessments each and every time someone wants to make a purchase and we take a new underwriting decision for every transaction. This means we only lend to people who can pay us back.”
They firm added that they “provide a short term repayment plan with no ability to revolve and we restrict the use of our services if customers do not pay back.”
Using Klarna is not guaranteed and they “don’t provide an open line of credit like predatory credit cards – we release a small amount – linked to a specific purchase – and if customers demonstrate they shop responsibly and repay, more is released next time.”
Before making a new lending decision they claim to “look at a range of different data sources; this includes previous usage of their products, information from credit bureaus and in some cases open banking data, which allows customers to securely share income and spending data from their bank accounts.”
In addition to the 99% global repayment rate, only 4% of Klarna’s BNPL consumers “in the US in 2023 incurred a late fee. This data clearly demonstrates that consumers use our products responsibly to manage their finances and add flexibility to their spending.”
