KLARNA POLICED?

‘Buy now, pay later’ boss rejects scrutiny from City watchdog

Britain’s biggest “buy now, pay later” firm has rejected suggestions that the sector should be regulated by the City watchdog amid fears that shoppers are being encouraged to take on unsustainable debts.

Klarna is one of a growing number of firms that allow shoppers to buy items without spending a penny of their own cash at the time. Instead they pay weeks or months later.

The sector has attracted controversy and has been criticised by debt charities for encouraging overspending online. Young customers are often the targets of its marketing.

Telegraph Money can disclose that Klarna now wants to use “open banking” technology to see inside users’ bank accounts and avoid lending to those who could not afford to repay.

Luke Griffiths, the head of Klarna in Britain, has rejected the suggestion that the sector needs greater scrutiny from financial watchdogs. Klarna is regulated by the Swedish banking authorities, which cover its British activities too. However, some of its services, which allow users to pay in 30 days or split the cost over three instalments, fall outside the regulator’s purview.

Mr Griffiths said the firm’s lending assessments, which examine credit reports and other financial data, meant that regulation was unnecessary. He said Klarna rejected between 15pc and 25pc of all customers who sought finance.

“I don’t think that, at the moment, there is a need for it to be regulated,” he said. “We operate all our services to the same standard, whether they are regulated or unregulated. We want to be a responsible lender.”

However, Mr Griffiths said the firm wanted to use open banking to aid the decision-making process. This new technology allows financial apps to see how much money is held in customers’ bank accounts and monitor spending patterns. “Credit reference agencies are a very good source of data, but they are not particularly dynamic in terms of seeing someone’s financial well-being,” he said.

Klarna is the biggest player in the British market, ahead of rivals such as Clearpay and Laybuy.

One challenge to face firms is that the sector’s reputation could be harmed by bad actors that target industries with loose or no regulation. Other fledgling sectors, such as peer-to-peer lending, have seen their reputations damaged by unscrupulous firms.

Klarna said it wanted to “champion best practice”. Mr Griffiths added: “If others come in and cut corners, that’s for the Financial Conduct Authority to have a view on.” The FCA, Britain’s financial watchdog, said it monitored the “buy now, pay later” market but new legislation would be required for the sector to become regulated.

Klarna has recently begun a campaign to alert shoppers to the dangers of reckless spending. However, its own website boasts that customers can “go from browsing to bought in 25 seconds”. It also acknowledges that customers who pay in instalments spend 45pc more.

Mr Griffiths said Klarna gave shoppers the option of trying items before purchase. But debt charities fear that the firms have made it too easy for shoppers to spend beyond their means. These worries have grown since the start of the coronavirus crisis, as jobs have been lost and incomes have fallen.

Klarna now has 8.6 million customers in Britain alone and has partnerships with major retailers such as Topshop, H&M and Asos. Mr Griffiths said the average user spent £73 and fewer than 1pc had failed to repay their loans. “We are not trying to encourage irresponsible spending,” he said.

This newspaper has previously disclosed how some customers have had their credit score damaged after using Klarna. In other cases, under-age shoppers have exploited a security flaw to go on free spending sprees. Customers also claimed they had used Klarna without realising because it was promoted as the default payment option by retailers.

StepChange, the debt charity, has called for the practice of offering “buy now, pay later” above traditional payment methods to be banned, but Mr Griffiths rejected this idea. “It’s not something under consideration,” he said. “The consumer has to actively opt in to use our service; we’re not forcing anyone to make that decision.”

Jane Tully of National Debtline, another charity, warned: “If you miss repayments, your credit score may be affected and the debt could be passed to a debt collection agency.”

Klarna’s website boasts that customers can buy items in 25 seconds

Luke Griffiths, head of Klarna in Britain, said the payments firm was ‘championing best practice’