Pagaya sues Klarna over alleged trade secret misappropriation

This lawsuit highlights the growing tension between specialized underwriting firms and major Buy Now, Pay Later (BNPL) providers like Klarna. Pagaya alleges that Klarna engaged in a partnership under false pretenses solely to gain access to proprietary AI underwriting algorithms. According to the complaint, Klarna used this sensitive information to build its own internal credit scoring systems, allowing them to bypass Pagaya’s services. For retailers and merchants, this dispute illustrates a shift in the BNPL landscape. Major lenders are increasingly moving away from third-party tech partners to build 'in-house' credit models. While this might lead to more integrated experiences for your customers, it also signals potential consolidation in the industry. If the courts find that Klarna improperly used intellectual property to boost its approval rates, it could lead to regulatory scrutiny or changes in how these lenders evaluate your customers' creditworthiness. For now, the takeaway for operators is that the 'behind-the-scenes' technology used to approve your shoppers is becoming a high-stakes legal battleground. These shifts often precede changes in lender risk appetite or merchant fee structures.

Source: Payments Dive

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