Fintech lender Klarna said it has tightened its lending criteria during the coronavirus pandemic.
Its vice president Luke Griffiths said Klarna is only accepting new customers that it believes will repay on time, and is increasing the frequency with which it reviews its acceptance criteria.
“[Klarna’s] default rate is less than one per cent and we are working super hard to make sure that we are only accepting customers that can pay over time,” he told the BBC today.
The startup, which offers a buy now, pay later service to consumers, is making preparations as levels of financial hardship increase due to the economic effect of the pandemic.
“If anything, it will be at the front end that we are rejecting consumers because we don’t feel they will be able to pay, rather than on the back end which is customers who are unable to pay,” he added.
Klarna has 8m customers in the UK, and holds partnerships with several major retailers including Asos, Topshop and H&M.
Demand for online shopping has boomed during lockdown, providing Klarna with its own boost.
It said it has seen a 105 per cent jump in purchases of running shoes and a 60 per cent increase in beauty product sales, as well as a “significant uplift” in purchases of bicycles and cycling accessories.
“We saw our volumes increase during that period just reflecting the increase in digital transactions generally,” said Griffiths.
The reopening of physical stores last month has led to a return to the high street, with sales rising 3.4 per cent in June.
However Paul Martin, head of UK retail at KPMG, said that “whether consumers will forego the convenience of online shopping now that they’ve become accustomed to it” was the fundamental question for the sector’s future.
According to Barclaycard, over half of consumers are continuing to avoid the shops despite the lifting of lockdown measures, suggesting the high street’s recovery could be a slow and painful one.