Buy now, pay later (BNPL) providers should ‘follow the lead of Klarna’ says Which? after the payments network launched the UK’s first credit ‘opt out’ tool.
Against the backdrop of delayed government regulation for BNPL services, Klarna has taken the initiative by empowering consumers to deactivate credit temporarily.
The tool, accessed through the Klarna app’s settings, enables shoppers to block the use of Klarna Pay in 30, Pay in 3 or financing products. Upon deactivating credit, Klarna guides consumers to a dedicated page that provides resources and support for individuals grappling with indebtedness. They can only reactivate credit services by calling Klarna’s customer service.
There are mounting concerns about the ease with which individuals can accumulate unmanageable debts by overspending. UK consumers have racked up £4.9billion in BNPL debt for the first four months of 2023 alone.
Earlier this year, the government provided an update on new rules, originally proposed in 2021, which would bring BNPL players within Financial Conduct Authority (FCA) regulation.
But it could be 2024 before reforms even take place.
In a Twitter thread introducing the new feature, Klarna CEO and co-founder Sebastian Siemiatkowski called on traditional credit providers to follow its lead: “Hey @bcardpayments, @amexuk, @hsbc let’s all agree that consumers should have the tools to switch off from credit if they feel it is not helping their financial goals. We’ve done it. Would love to see you guys follow.”
The launch of the new feature has garnered praise from Rocio Concha, director of policy and advocacy at consumer group Which?, who encourages other BNPL providers to follow suit.
“With an unrelenting cost of living crisis forcing more consumers to use buy now, pay later services, it’s encouraging to see a major provider helping consumers to take more control over whether they’re using credit – and other BNPL providers could follow their lead and provide consumers with more control over their spending.
“However, while a step forward, Which? research has consistently shown that consumers are too often not provided with the potential pitfalls of using credit to pay for items, and it is only long-awaited government regulation that will properly protect consumers while using these services. That means greater transparency over the risks of missed payments and credit checks before consumers are cleared to use BNPL providers.”
Klarna’s new tool has highlighted the potential of collaboration between industry and government stakeholders in shaping effective consumer protection measures.
Amid the prolonged wait for official regulation, the payment company has even attributed the idea for its credit ‘opt out’ tool to Andrew Griffith MP, UK Economic Secretary to the Treasury.
“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,” said Siemiatkowski. “That’s why I loved Andrew’s suggestion of a voluntary credit ‘opt out’, so people are in control of their finances.”
Griffith commented: “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.”
According to Klarna, making ‘pre-decisions’ is a well-established way to manage self-control. It compares it to how people who pre-prepare meals for the week are better at sticking to a healthy diet than those who decide what to eat each time they open the fridge.