Payments giant Klarna has recently announced the launch of their own physical Klarna card in the UK, allowing consumers to “pay later” for their purchases everywhere in physical stores.
The card will launch with Klarnas “Pay in 30”, which allows consumers to delay payments for up to 30 days. The company has also confirmed it intends to add more of its payment options, including its popular “Pay in 3” product, to the card over time.
Alex Marsh, head of Klarna’s UK operations, said, “Consumers are rejecting credit products that charge double-digit interest rates while allowing repayments to be put off indefinitely
“For online purchases where credit makes sense, buy-now-pay-later has become the sustainable alternative with no interest and clear payment schedules. The launch of Klarna Card in the UK brings those benefits to the offline world, giving consumers the control and transparency of BNPL for all of their in-store purchases.”
Only a matter of time
Ian Bradbury, CTO, financial services at Fujitsu UK&I believes the card will be very popular amongst Klarna’s customer base, evidenced by 400,000 customers on the waiting list and previously successful launches in Germany and Sweden.
“It was only a matter of time before ‘buy now, pay later’ (BNPL) firm, Klarna, introduced physical cards to expand their services, he said. “Their success online has long rivalled legacy banks, with the BNPL model becoming a customer favourite due to its ability to offer short term interest-free borrowing. And the introduction of additional payment options, such as split purchasing, offers consumers even greater options and flexibility when shopping.
“Klarna is well-positioned to capitalise on the growing demand for services that bridge the gap between digital and physical worlds. What’s more, not only will a physical card offering be welcomed by their already loyal customer base, but it will enable them to tap into a demographic that is not online and predominately purchase in stores. This type of innovation will ensure that loans will not remain solely in the domain of traditional financial service providers and revolutionise traditional economic structures.
“Digitally native apps continue to infiltrate the online and offline space and force traditional banks to innovate and update their historically dated services. However, it’s vital that BNPL schemes are transparent and work with leaders in the sector to introduce safety measures, and further regulation if necessary, to avoid millions of UK shoppers taking on debt from delayed payments.”
The Next Step
The Klarna card represents the next step in Klarnas evolution to take on the incumbent financial institutions such as banks and traditional credit card companies.
Despite the seeming popularity, however, there is growing concern from the industry that this product could negatively affect consumers. This toes into the ongoing criticism that BNPL products and companies have received, with concerns around consumers overspending and falling into debt without realising.
On this, Jens Bader, CEO of Berlin-based payments business, Funanga, said: “The Klarna card could become a dangerous piece of plastic. Buy Now Pay Later creates unhealthy customer behaviour and drives people into financial distress. This is the business model and I’m deeply concerned that the BNPL trend is making its way into day-to-day physical payments, as well as online purchases. This card will appeal to impulse-driven customers, people who want to buy things that they cannot really afford and probably do not need. It enables them to do so easily and immediately, with a single payment.
“Many BNPL users do not realise the schemes are a form of credit or debt. This means they are opting into a product under a false pretence. It begs the question as to whether these consumers are being misled. Customers could be credit checked when opting for a BNPL service, this means credit rating agencies would frequently be checking on customers’ creditworthiness. Every check that influences the algorithm leaves a mark on the customer’s file. Most people are completely unaware and I believe many people would stay away from such services if they knew that they entered into a debt service.
A slippery slope
Magnus Larsson, Founder and CEO of MAJORITY added: “Buy now, pay later’ is a double-edged sword. While it gives needed flexibility for many people, many users can be lured in with the idea of not having to pay now and when later comes, they may not be able to make the payments they agreed to. Even with the Klarna card offering no interest and no late fees, the idea of promising money you aren’t ready to pay upfront can be a slippery slope. It can be most dangerous for people with small margins and those living paycheck to paycheck who can easily get trapped after one big purchase.
He continued: “Also if you’re an immigrant from another country or someone with English as a second language, it’s harder to understand the fine print of what these companies have you agree to. Credit is a business where these companies’ whole idea is that you will pay interest or fees…to make money. With all ‘credit’ products or ‘buy now, pay later’ programs, customers need to know what they’re signing up for. No one has built the perfect credit product, but the Klarna card is an interesting step in taking away some unnecessary fees. I’m sure we’ll see many others adopting this format in the future.”
David Jarvis, CEO & Co-founder, Griffin: “What I find most interesting about this trend is that we’re increasingly seeing BNPL checkout options being adapted to more traditional payment rails (i.e. cards). I think this speaks to the reluctance of merchants to have multiple branded BNPL payment providers cluttering up their checkout page. Additionally, this approach creates a better user experience for consumers by reducing the number of checkout options and by mirroring the familiar e-commerce experience of paying by card. The question I have is why, in a world in which all BNPL is run through traditional card rails, someone would choose Klarna over a product like Monzo Flex where they can track their BNPL lines in-app as part of a holistic banking experience.”
A lack of regulation
One of the main concerns of the BNPL sector is that the products remain widely unregulated While the UK government are currently holding a consultation process following a review that recommended tighter regulation, it is unclear if or when the regulation may come about.
Personal finance expert and editor-in-chief of Lendingexpert.co.uk, David Beard said: “Just this month, it was revealed Klarna wanted to shift criticism onto credit card providers as the government prepared to clamp down on buy now pay later providers, which seems a little rich considering they’ve just announced their own card – which in all intents and purposes is essentially a credit card, albeit with different terms.
“It’s a bit worrying that this card has launched because the card is not regulated by the Financial Conduct Authority, which means shoppers who opt to use the card will be missing vital consumer protection. It’s important to innovate with the ways we pay, but it’s more of a priority to protect the most vulnerable in society from getting themselves into unaffordable debts.
“The FCA ensures providers are transparent, fair and don’t mislead consumers. Without answering to them, I can’t feel assured that Klarna will do enough to adequately explain the terms and conditions of the card.”
Klarna and other BNPL companies have also been very keen to distinguish BNPL from other forms of credit, claiming that BNPL is better for consumers than traditional credit cards.
Myron Jobson, Personal Finance Campaigner, interactive investor, says: “It looks like a credit card, but crucially it isn’t – blurring the line between regulated and unregulated credit. Klarna and other BNPL providers are not required to abide by the same regulations as more traditional creditors, requiring things like affordability checks and making sure customers are treated fairly.
“Regulation of the BNPL industry can’t come soon enough as the increase in the cost-of-living risks even more people turning to BNPL schemes to help tide them over. You can now buy essential groceries through some BNPL services.
“Worryingly, many people are still unaware that BNPL schemes are a form of credit. Recent research by Which? found most users admitted to skim reading the T&Cs or simply ticked a box to say they had read them. BNPL firms should make it crystal clear to customers that they could be referred to debt collectors and their credit scores could be tarnished if they miss payments.
“Consumers would do well to remember the age-old yet still important and relevant financial lesson of spending within your means as. While it might be tempting to delay payment – and BNPL adverts can be very enticing and sometimes misleading – it can be a slippery slope into debt.”
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