Following the news that Klarna will now begin reporting transactions;

Jaimini Pattani, Banking Analyst at GlobalData, a leading data and analytics company, offers her view:

“For a long time now, the most significant benefit of using credit cards over Klarna, or other Buy Now, Pay Later options, was the fact that credit cards allowed a user to build up a credit score. Now customers can build their credit using Klarna, they would no longer need to take out high-interest credit cards.

“This is a potentially damaging move for banks, which could have further competition if other Buy Now, Pay Later providers follow Klarna’s lead. A GlobalData survey* found that almost half of under 35s in the UK don’t hold a credit card, and Klarna’s recent announcement will likely impact this figure further.

“Furthermore, the survey also found that across various markets, customers selected their main credit card in the hope that it will help them build up a credit score. If other Buy Now, Pay Later firms in Asia or the USA allow customers to build up their score, the threat for mainstream lenders increases. According to research by GlobalData, in the USA, 27% of customers use a credit card to build up their credit score only, compared to Singapore at 25% and both Hong Kong and the UK at 22%.

“While some customers will likely be disappointed by the news, it is unlikely they will apply for a credit card as an alternative. However, for the younger customers looking to get themselves on the property ladder, building up a credit score through Klarna will likely be much more appealing than other high-interest forms of credit.”

*GlobalData’s 2021 Financial Services Consumer Survey

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