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You can find the current article at its original source at https://www.theguardian.com/money/2018/nov/17/klarna-buy-now-pay-later-system-that-is-seducing-millennials
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| Klarna: 'buy now, pay later' system that is seducing millennials | Klarna: 'buy now, pay later' system that is seducing millennials |
| (2 months later) | |
| Swedish firm Klarna has taken online shopping by storm over the past couple of years. Millennials no longer pay for clothes and gadgets with old-fashioned money – they “Klarna” it. | Swedish firm Klarna has taken online shopping by storm over the past couple of years. Millennials no longer pay for clothes and gadgets with old-fashioned money – they “Klarna” it. |
| If you’re over 30, you’ve probably never heard of Klarna. It’s a new form of digital payment pitched at people who “wanna cop some new gear but can’t wait until payday”, as JD Sports puts it. | If you’re over 30, you’ve probably never heard of Klarna. It’s a new form of digital payment pitched at people who “wanna cop some new gear but can’t wait until payday”, as JD Sports puts it. |
| At Asos, when buyers reach the checkout, they are asked to pay with a debit or credit card, PayPal, or “pay later with Klarna”. It says Klarna lets you “sit back and relax. Klarna will notify you when payment is due.” | At Asos, when buyers reach the checkout, they are asked to pay with a debit or credit card, PayPal, or “pay later with Klarna”. It says Klarna lets you “sit back and relax. Klarna will notify you when payment is due.” |
| Klarna was set up in 2005 by Swedish entrepreneur Sebastian Siemiatkowski, 37, and is currently valued at about $2.5bn (£2bn). Last year its profits tripled to £29m. It launched in the UK in 2017 and recently announced a $20m partnership with H&M. | Klarna was set up in 2005 by Swedish entrepreneur Sebastian Siemiatkowski, 37, and is currently valued at about $2.5bn (£2bn). Last year its profits tripled to £29m. It launched in the UK in 2017 and recently announced a $20m partnership with H&M. |
| Klarna allows people who shop online at Asos, Schuh, JD Sports, Topshop, and hundreds of other online stores, to “try before you buy”. Shoppers accepted for Klarna’s pay later service have 14 or 30 days (dependent on the retailer) to pay for their online order. This means you could get a pile of clothes delivered, try them on and return any you don’t like, then only pay for what you keep. For cash-strapped millennials, this removes one of the biggest obstacles to online shopping — waiting for returns to be credited. | Klarna allows people who shop online at Asos, Schuh, JD Sports, Topshop, and hundreds of other online stores, to “try before you buy”. Shoppers accepted for Klarna’s pay later service have 14 or 30 days (dependent on the retailer) to pay for their online order. This means you could get a pile of clothes delivered, try them on and return any you don’t like, then only pay for what you keep. For cash-strapped millennials, this removes one of the biggest obstacles to online shopping — waiting for returns to be credited. |
| There are no interest, fees or late charges. Approval depends on a soft credit check (this doesn’t show on your credit report when other lenders run checks), a customer’s credit history, age and other factors. | There are no interest, fees or late charges. Approval depends on a soft credit check (this doesn’t show on your credit report when other lenders run checks), a customer’s credit history, age and other factors. |
| So what happens if you don’t pay? Klarna is open about the fact that non-payment will affect a customer’s credit score and admits accounts are passed to debt collection agencies if unpaid after several months “as a last resort”. | So what happens if you don’t pay? Klarna is open about the fact that non-payment will affect a customer’s credit score and admits accounts are passed to debt collection agencies if unpaid after several months “as a last resort”. |
| So, how does Klarna make money if not from interest and surcharges? The answer is merchant transaction fees from retailers. Klarna reckons it can increase the average online store’s orders by 30% and the average spend by 34%. The claim stands up when you speak to some of Klarna’s customers who admit they have upped their spending. | So, how does Klarna make money if not from interest and surcharges? The answer is merchant transaction fees from retailers. Klarna reckons it can increase the average online store’s orders by 30% and the average spend by 34%. The claim stands up when you speak to some of Klarna’s customers who admit they have upped their spending. |
| James Watkins, 28, from Nottingham, says. “Klarna has definitely increased my spending through Asos – I’d say it’s risen by 300% since Klarna was launched on the site. I now have a date in my diary each month to pay off my Asos balance on Klarna, which suggests how often I use this option.” | James Watkins, 28, from Nottingham, says. “Klarna has definitely increased my spending through Asos – I’d say it’s risen by 300% since Klarna was launched on the site. I now have a date in my diary each month to pay off my Asos balance on Klarna, which suggests how often I use this option.” |
| Natalie Richardson, 26, from Leeds, typically orders between £250 and £500 worth of Asos products each month. “Before Klarna, I used to be in a constant cycle of waiting for money to be refunded after returns, which reined in my spending to a degree,” she says. | Natalie Richardson, 26, from Leeds, typically orders between £250 and £500 worth of Asos products each month. “Before Klarna, I used to be in a constant cycle of waiting for money to be refunded after returns, which reined in my spending to a degree,” she says. |
| Jane Clack, money adviser at debt advice firm PayPlan, says: “This form of introduction to credit does not encourage budgeting and supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.” | Jane Clack, money adviser at debt advice firm PayPlan, says: “This form of introduction to credit does not encourage budgeting and supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.” |
| Some retailers also offer a Klarna product called “Slice It” allowing customers to pay in instalments over three to 36 months. Accounts will receive three warning letters at £12 a go before being passed to a debt collection agency. | Some retailers also offer a Klarna product called “Slice It” allowing customers to pay in instalments over three to 36 months. Accounts will receive three warning letters at £12 a go before being passed to a debt collection agency. |
| Iona Bain, founder of the Young Money Blog, says Klarna risks being debt by another name for a new generation. “It sounds ingenious but my experience tells me that young consumers aren’t great at focusing on the details when it comes to debt,” she says. “Unless you’re keeping a very close eye on liabilities like these, the risk that they get out of hand is very high indeed.” | Iona Bain, founder of the Young Money Blog, says Klarna risks being debt by another name for a new generation. “It sounds ingenious but my experience tells me that young consumers aren’t great at focusing on the details when it comes to debt,” she says. “Unless you’re keeping a very close eye on liabilities like these, the risk that they get out of hand is very high indeed.” |
| A Klarna spokesperson says: “We have safeguards in place to ensure that our products are only offered to those who are able to afford it and who will be able to make repayments in a sustainable way, without impacting their financial well-being. None of our customers can make unlimited transactions. We have thresholds in place to ensure that a customer makes a payment on their current purchases before they are able to make any further purchases, to prevent overspending and encourage responsible purchasing.” | A Klarna spokesperson says: “We have safeguards in place to ensure that our products are only offered to those who are able to afford it and who will be able to make repayments in a sustainable way, without impacting their financial well-being. None of our customers can make unlimited transactions. We have thresholds in place to ensure that a customer makes a payment on their current purchases before they are able to make any further purchases, to prevent overspending and encourage responsible purchasing.” |
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