Klarna and Schufa Pilot BNPL Over-Indebtedness Protection Solution

BNPL fintech leader Klarna is starting a six-month pilot project with German private credit bureau Schufa for Buy Now Pay Later service customers to be better protected against over-indebtedness

Klarna and Schufa Pilot BNPL Over-Indebtedness Protection Solution

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One of the leading global Buy Now Pay Later (BNPL) providers, Klarna has partnered with private credit bureau Schufa to perform soft credit checks aimed at protecting customers from potential over-indebtedness.

The credit score provided by Schutzgemeinschaft für allgemeine Kreditsicherung – the General Credit Protection Association – Schufa is based on payment behaviour data it gets from the partner companies.

Schufa offers a single platform for its contractual partners to record, store and exchange payment records. the credit bureau uses this database for both credit ratings and identity checks. The loads of data become an important decision-making basis for various companies, helping them to minimise payment defaults in retail and corporate businesses.

Previously, inquiries from Klarna had a minor effect on individuals’ Schufa scores. However, this impact on the score will be eliminated altogether as part of the pilot project.

Considering the popularity and easy process of getting BNPL short-term financing loans, consumers are increasingly turning to Buy Now Pay Later services as living cost rises globally. Therefore, Klarna aims to improve its solvency-checking procedures, which had previously relied predominantly on internal data.

Swedish fintech did periodically make inquiries to credit reporting agencies such as Schufa in the past to get a trustworthy credit check within milliseconds. The failure rate of this check proved to be extremely low. Thus, in the first half of 2022, more than 99% of Klarna’s German customers paid the fintech back.

Within the pilot project, Klarna will carry out inquiries (aka soft credit checks) at Schufa at certain intervals. At the same time, the use of all Klarna products will no longer have consequences for users’ creditworthiness – with the exception of installment purchases, where a proper hard credit check is legally required.

Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.