Policymakers around the world are rightly looking at ‘buy now pay later’ (BNPL) regulation. Consumers have snapped up sustainable credit products that offer no interest, no fees, low or no charges (like Klarna), the ability to ‘try before you buy’, buyer protection, clear repayment schedules and reminders… the list goes on. They are turning away from the greed-fueled practices of old banks and high-cost credit cards towards flexible and better-value payment methods like Klarna. But there are still some BNPL providers out there that aren’t offering fair and transparent products, which is why regulation matters. Let’s set the record straight: at Klarna, we welcome proportionate regulation that is future proof and fully protects consumers. 

In the EU, policymakers have been discussing legislative proposals to update the rules on consumer credit across Europe (the Consumer Credit Directive, or CCD), which would include short-term, interest free credit products for the first time.

Our messages to EU policymakers are very simple:

• We agree that consumers should shop with the money they have first and foremost. However, sometimes using credit makes sense – like when you want to check you’re satisfied with what you ordered online before you pay. Most BNPL products offer this protection to consumers at zero cost making it the cheapest, safest way to shop online. 
• The revised CCD must prioritise financial inclusion and consumer welfare. This should include making innovative short-term, interest free credit widely available to consumers, increasing numbers of whom are actively seeking an alternative to existing high-cost options like credit cards. 

We support the vast majority of the Commission’s new CCD proposals. However, the following elements require further adjustment in the negotiations between the Member States and European Parliament to deliver the best outcome for EU consumers and avoid some important unintended consequences: 

1. Pre-contractual information. We pride ourselves on providing clear, concise and intuitive information that allows customers to fully understand what they can expect when they make a purchase with us. However, the current EU proposals include standardised information that is unnecessary or irrelevant for short-term, interest free credit, like ‘APRs’ (do you know what it stands for? What’s a ‘good’ APR level? Do you know the APR on your credit card?) and the ‘right to withdraw’ in 14 days. Consumers can always ‘withdraw’ from any BNPL agreement at any time simply by paying the cost of the product they have purchased. 

Barraging people with unhelpful information is confusing, distracting and discourages engagement with information that really matters. But don’t just take our word for it, check out this video and see what the Standard European Consumer Credit Information (SECCI) form as currently proposed would look like.

2. Creditworthiness assessments. We agree it’s best to prevent over-indebtedness problems before they occur. However, credit checks also need to be appropriate for the type of credit used, which in the case of BNPL is short-term, zero cost and for low purchase amounts. At Klarna, we assess affordability for every BNPL purchase - but asking consumers to undertake a slow, intrusive process like a full income and expenditure assessment would not be appropriate when all they want to do is buy a €90 pair of jeans. 

What would help?

Across the EU, external databases are very fragmented and in many MS don't exist at all. When they do exist, they are unfit for purpose and not abreast of new forms of credit resulting in a distorted overview of the domestic credit market. Domestic credit database reform is therefore essential to ensure all BNPL providers can access quality and real-time credit directory data across Europe. This would assist all credit providers who want to use it, like Klarna. 

We propose to carve out short term, interest-free credit where credit assessments are undertaken in real-time and for every transaction from non-applicable and dis-proportionate measures. The suggestion by Member States to exempt big online firms selling goods and services, who don't have any experience with granting credit, from key consumer protection provisions such as creditworthiness assessments will lead to an unintended consequence. Whilst established, experienced credit institutions like Klarna that provide the same product cannot use this exemption, this would lead to lower levels of protections for European consumers when large tech and retail companies act as financial providers without the necessary safeguards, exactly the opposite of what the review of the CCD envisages. 

As an European company with a global outlook, we very much support further harmonisation in the EU consumer credit market and urge EU policymakers not to settle for minimum requirements which could lead to an even more scattered credit market, reducing consumer protection overall.

We know they want to promote innovation, financial inclusion and consumer welfare. These changes would be our recommendations for delivering that. Without them, sustainable, short-term, interest free credit will be at a disadvantage to old, high-cost, high-risk credit such as credit cards and with no material benefit for European consumers who are increasingly using sustainable credit products. 

If you would like to learn more about Klarna’s perspectives on the Consumer Credit Directive contact global.pa@klarna.com.