Klarna discussion

There is no denying it’s convenience, and as with any financial product, used correctly in a responsible way there is undoubtedly some benefit to some people (otherwise it wouldn’t have any value added at all). The question is whether that small convenience it offers to responsible people offsets the potential harm that comes from its abuse. The product doesn’t alter the eligibility of your return, I would argue that not having Klarna results in more responsible purchasing behaviour, you’re less likely to make an irrational and unnecessary purchase if it wasn’t there.

my issue with pay later in 3 is that they say it doesn’t affect your credit file. However if any of your payments fail they then take the whole amount within 7 days, which in most cases is obviously not going to work as the initial amount failed. If you then fail to pay that they register a pay day loan which definitely does screw your credit file.

Is that made clear when you use them?

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Is this true? I had no idea. Did you hear this from someone else or is this your own experience?

Have only used them in a different way - we have a Peloton at home and that’s financed through Klarna over 3 years at 0% (only reason for doing so). My experience has been fine - each month when payment is due it’s made abundantly clear that if you make the payment as per scheduled terms the 0% continues, but you can choose to make a lesser payment which then switches to an 18.9% over the term. Messaging and impacts is very clear to the user.

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its what the debt charities have been saying.

I’m not the biggest fan of Klarna I must say, and not to keen on the way certain brands and retailers advertise the feature.

I think generally the whole bundling of ‘fast fashion’ and a disposable economy lead to the rise of it, but sites like asos encouage using Klarna to ‘have a shopping binge’, and depending on the site you are on, there’s not always a good enough job done of making clear that you are entering into a credit agreement.

Obviously there’s responsibility on the consumer, but I don’t think it’s utilised well be some retailers.

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What is frustrating is how the ‘fee’ for these services is being applied to ALL customers.

Klarna, and other similar providers of this ‘undefined credit product’ are charging the retailer a percentage of the checkout amount for this service, probably a few percent I would imagine. The retailer can’t apply this fee to customers in any other way than to absorb the cost into the COGS and apply that cost evenly across all consumers. So whether you want to use klarna or not, you are paying for it!

The financially savvy people will take advantage of the option if only not to feel short-changed, increasing the cost for everyone as the klarna ‘fee’ becomes ever greater and klarna can report that ‘X% of your customers used our service’ to attract more retailers to sign up.

What makes me laugh though is this idea that somehow the consumer is benefiting from this service in anything other than the short term. When pay later products are offered it’s been shown that customers shop more often, so if they are using pay later on every purchase they’ve just essentially got themselves into a perpetual payment lag situation with the retailer and the ‘benefits’ of pay later quickly evaporate after that first shopping experience. Oh but everything in the store is now a few percent more expensive, for everyone.

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It’s an interesting concept but you’re forgetting that taking payment online via PayPal, credit/debit cards, gift cards etc have a cost attached and it’s just a cost of doing business as taking cash in a retail store is.

A bit narrow minded to think that we’re all paying extra because of Klarna when that’s not really the case.

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Why isn’t it the case TTJJ? Individuals cant be ‘billed’ for buy now pay later, the service is ‘free’… so where does the cost to the retailer end up? I admit there is a regular payment services fee associated with any form of payment, whether that is cash or card, but these are very low for big retailers when compared to the cost of buy now pay later, which is several percent of the checkout value.

Correct me if I am wrong, but aren’t the costs of this service absorbed by all shoppers?

You aren’t (Directly) paying the fee that the retailer pays when you pay by credit, debit card or via PayPal or Amazon payments etc. and all of these have % fees attached for the retailer whatever they are. PayPal is a very popular payment option for convenience and we don’t know what they charge the retailer for the integration.

On top of that Klarna will reduce costs in other ways by allowing the retailer to not directly process the card transactions etc themselves on payments.

I accept that, but if we can agree that Klarna do charge more than any of the other ‘non-credit’ transaction processes, then that higher cost is being absorbed by the customer. As opposed to a regular credit product, like paying in instalments, where the cost of the finance is met by that individual customer, klarna operate in a market where both you and I know it is a credit product, but a technicality defines it as an ‘invoice’ product, and the cost of that product can’t be met by the individual.

In the same way that the new payment services directive doesn’t allow retailers to charge a different amount for credit cards and debit cards, the actual price of all goods and services has had to adjust to absorb that extra cost to retailers in accepting credit cards. It is a similar dynamic for Klarna.

Anyway, I suspect we won’t agree on the above…

Some new articles on Klarna hitting the web:

https://fashionunited.uk/news/retail/is-buy-now-pay-later-the-new-financial-crisis-for-millennials/2020021247477

https://www.telegraph.co.uk/money/consumer-affairs/buy-now-debt-later-lure-klarna-encourages-young-people-spend/

https://www.theguardian.com/lifeandstyle/2020/feb/08/its-like-the-wild-west-s-the-latest-buy-now-pay-later-service-just-rebranded-debt

Definitely is a credit product - I don’t see how they’d be allowed to call it anything else.

The costings I still don’t agree with - think of all the business that offer “free” (to the buyer) instalments on a store card, instalment scheme or otherwise. PayPal offer buy now pay later / instalments with a number of retailers.

I don’t think Klarna is costing us as consumers anymore as the cost of these services is just the cost of doing business now as it’s how people want to pay. I’ve personally used Klarna once not because I couldn’t afford it but because I wasn’t sure if I’d like the product and so it’s easier for me to not pay until I’d decided then I wouldn’t have to think about the refund.

Totally agree with this. Its pushing the use of credit for something people, by and large, dont actually need to survive. Its not emergency cash… its fast fashion cash.

I went digging on Klarna’s website to try and get an idea of costs, from what I can tell, they have 3 different models, 30 day free, 3 installments, and 36 months, which cost 3.4%, 1.9% and 5.4% respectively. Or at least the top tier fee is - I assume Asos would get better rates.

Typical card processing fees are in the region of 1.5-3.5%, per Internet, so they are marginally higher.

All of the marketing material about Klarna talks about the average increase in order £ and frequency they see vs normal processes, so I would view then the driving benefit for Asos is they get more reveneue than they otherwise would due to the credit function.

I run an internet based business myself which processes card payments and direct debits and can assure you that the fees are substantially less (relatively) than 1.5%. Stripe charge 1.1% for example, and they are a third party merchant service that allows any Tom, Dick or Harry to process payments in Europe. Those fees you reference for Klarna sound about right and they are not insignificant. PayPal charges 3% and in that fee manages to account for all the various PayPal protection payouts as well as a nice profit too.

I think people underestimate the fee, if it wasn’t that big then klarna wouldn’t be valued at over $5bn.

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I suppose this brings up the other reason beyond credit that I’m so sceptical about Klarna.

This is only going to encourage more people to purchase items they may not want to keep, for example the same item in multiple colours or sizes, just because they now know they can return them without taking any financial hit.

That in itself would be fine and I wouldn’t have a problem with it if retailers actually got a grip on returns and didn’t dump huge amounts of returned clothing into landfill.

I’ll be the first to admit that I’m not the greenest person in the world, (you’ve just got to look at my spreadsheet of upcoming flights) so I’m very much in a glass house here saying this, but I’m really not sure people are aware of the environmental impact of the whole fast fashion returns culture. Klarna is only fuel to that fire.

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I’ll admit to being a bit fuzzy around the details of Klarna, but I’m dead set against anything which encourages people to buy more clothing.

Like @RichardL I’m not the greenest person on the planet by a long way, but I find it amazing that people willingly buy bags and bags full of clothes that they don’t need, in this day and age.

I’ll bet that I have clothing that I still wear which is older than some of the people on this forum. So I might be something of an extremist in this regard.

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Where do people stand on the whole ‘these consumers aren’t victims’ comments I often read. I appreciate that everyone has a responsibility to be financially independent and sensible but I also think its important for governments, and more generally society, to recognise the pressures we are placing on vulnerable people. Young people are immersed in social media content (and I don’t think they have much choice about it, it’s rammed down their throats from such an impressionable age), they then are encouraged by influencers and other ‘celebs’ to consume goods at a completely unsustainable rate, all so the influencers can get their ‘p’s’… and then we allow companies like Klarna to fuel that dangerous behaviour.

The company is only doing what it is legally entitled to do, and I am sure it is making its shareholders very happy. This is something that should be regulated, restricted from the very top.

Watch this ‘buy now, pay later’ get very big as every retailer experiencing lower sales looks to this as the golden ticket solution to drive the next wave of sales growth.

Calling for a ban for something that’s convenient to a lot of people just because some people can’t manage their finances is, imo, stupid.

Klarna give you a lot of time to pay - they have push notifications & send letters in the post, as well as emails to remind you. It’s 0% so they’re not taking advantage of people. They also have the split payments, where you can pay x amount over 3 months if it’s a bigger purchase. I personally don’t see anything wrong with it.