It was 3 years ago that Klarna's Co-founder and CEO, Sebastian Siemiatkowski, first said something needed to be done about Sweden’s out of control Blanco Loan bubble. Finally the Swedish Government has announced that certain providers of high interest unsecured loans will be exposed to greater regulatory scrutiny from the Swedish Financial Services Authority (SFSA). This goes as far as revoking the current law governing certain consumer credit operations and instituting a requirement for companies to secure a license as a bank or other credit institution to provide or broker credit to consumers. For many of these providers, most of whom currently operate under minimal levels of oversight, this will be kill or cure. Good!
Since first shining a light on the exploitative practices of Blanco Loan providers, Klarna has been working tirelessly to ensure we are living by the high standards we want to see from others. That’s why in 2021 we reformed the way we provide credit to ensure our products had the consumers best interests at heart. To do this we:
- Removed unnecessary fees.
- Introduced more supportive reminders for timely payments.
- Doubled the payment period for invoice purchases.
- Eliminated revolving credits without end dates.
Simultaneously, we went as far as opening up our lending data to the world and publishing it on our website - Wikipink - for all to see. By doing this, we not only busted the myths that exist about how and why consumers use Klarna but we also helped to shine a light on the shady practices of the mainstream, high interest, high fee, Swedish credit industry.
The results we’ve seen from these pro consumer reforms have been amazing. And we’re incredibly proud of the fact that our:
- Late payments have dropped 64%; and
- Defaults to less than 0.5%.
We naively thought our good example would force others to follow and while we have long challenged the industry to follow suit, they sadly haven’t…
The Blanco Loan bubble has continued to grow and is now an incredible 250 billion SEK, with each consumer holding an average balance of 110,000 SEK. This is in stark contrast to the average balance for a Klarna purchase which sits at 802 SEK.
We applaud the Government for taking this decisive action but we urge them to apply these proposed measures with a laser focus not like a blunt tool. The Government is absolutely right to force those high interest providers that make money off of consumer debt and misery into a more highly regulated arena but this cannot be at the expense of competition. By raising the bar of regulation for the bad actors, the Government must also spare a thought for what this means for new entrants and the innovators of tomorrow. Higher levels of regulation ultimately mean higher barriers to entry and thus lower levels of competition. This is the right action to take in order to curb Sweden’s pervasive over indebtedness but it must go hand in hand with broader measures that will allow the credit industry to benefit from continued competition and choice.
That’s why we advocate for outcomes based regulation that sets a high consistent standard for all providers to reach but doesn’t tell them how to do it. This will force lenders to compete on the value they can drive for their consumers rather than themselves while keeping the doors open to future innovation.
Therefore, we see this proposal as the starting gun on action to tackle Sweden’s over indebtedness. We hope to see further measures to shore up the future of the credit industry’s competitiveness in the coming weeks.