Depends how the repayments are handled. Might be in instalments so not quite like a credit card
I assume a big difference is the protections applicable.
A credit pot and virtual card, could be functionally equivalent to a fresh debit account with an agreed overdraft. Whereas a credit card would have section 75 etc
If apple seeks a phone directly they get a lot more than if sold via EE (as an example) so makes sense for them to pay a small fee to Barclays which is less than the cut to the reseller to get the direct sales.
Klarna is interesting in that they also offer a method of creating a one time credit card to use on retailers that don’t accept Klarna. I’ve wondered how they can possibly make money on that method.
Tymit does credit card. After each purchase one can switch it to instalments plan. With split into three months with zero APR. It is, overall, similar-ish to regular credit cards with upto 56 days interest free. One pays 2/3 earlier, and 1/3 later, instead of the full monty at the avelanche day.
So one could do credit card pot / virtual card with APR-free split into 3 months.
Curve does the same with up for 12 months and 1K limit. No APR either so far, although not sure how they’ll earn money on it without APR
Late to the thread and skipped a few comments so apologies if I’m repeating some sentiment…
On the topic of predatory lending - I do think BNPL can and does slip into that territory - you just have to look at a few…. Dubious uses of Klarna on “fast fashion” sites like ASOS and similar.
Often advertised in a “get your fashion haul now” kind of way, and I’m almost positive that’s paired with a solid understanding of consumer behaviour; I imagine there’s a lower likelihood of returning something once the product is “in hand” vs buying it when it’s out of budget.
I recall at one point Monzo trialled a BNPL type thing right? With an in feed card similar to Loans? I think it was short lived but this sounds like the resurgence of that.
Hope at least it’s advertised responsibly
Im wondering about S75 protection - I’m assuming it’s not a thing with services like Klarna. Fingers crossed for a true credit card in time!
Exactly. You look at Klarna’ homepage and it’s ‘Klarna makes shopping easier, Klarna is the best shopping experience’. The fact they are selling loans / credit products is deliberately hidden. They don’t mention finance, borrowing, interest rates at all there. Just ‘pay in three’ which they describe as the shopping experience you deserve.
I can’t see how this washes as a way to sell credit honestly
I guess they make money off the people who miss payments, as I never had any issues paying with Klarna, bought a phone through them with no extra added interest over the RRP for it
Legally it must be surely they are providing credit as I understand it, the law isn’t specific to credit cards. I don’t know how they respond to S75 requests though.
They get payment from the merchant (because they are encouraging people to spend more money at their stores)
I see, they get a kickback like an amazon affiliate
This is the theory anyway, and what Klarna’s mareting says. But Klarna in particular is really expensive for the merchant. At the company where I’ve implemented it about a year ago (high-value fashion) we did withdraw it again after a few months as we only saw our costs rise but no increase in conversions.
Based on my experience I feel it’s pretty much only Klarna benefiting from it (and those customers who use free credit wisely as a budgeting feature).
But one thing I can tell you as someone who’s spent significant amounts of time in ecommerce: There is no way on earth any sane ecommerce business would implement Monzo BNPL if it required extra effort (i.e. was a separate payment method, similar to Klarna), or was more expensive than normal card payments. The market share of Monzo customers is just too small to make that worthwhile. (Especially if they also do affordability checks, as was indicated in the article.)
So personally I 100% think this will be based on Monzo charging the customer (be it APR or a small transparent fee).
As someone who’s interested in ecommerce and fintech I’m curious to see what they’ve cooked up, but also sadly expecting the actual product to be somewhat underwhelming.
But we’ll see I guess
My guess is that it would be option B with perhaps an interest free period. Maybe that period would be reserved for those paying for Plus/Premium, or perhaps they would have extended interest free periods compared to the standard account.
From what I can see, Klarna pretty much operates to similar principles as most Payment service providers a la PayPal / Stripe etc:
Fees for e-commerce merchants (businesses):
Klarna charges merchants a set-up fee, monthly fee and a small percentage of each transaction. The details of these fees are dependent on the contract held with each business but are reported to be in the region of $600 for setting up fees, $90 per month and 1.5% – 3% for each transaction. These fees are comparable to competitors Stripe and PayPal who charge 2.9% + $0.30 per transaction.
Obviously individual experiences and contracts will vary, but at the retailer end it’s “in the same ballpark” as other payment systems.
So Klarna get a cut from every sale made via Klarna, and also any late fees + interest they get to claim. Obviously they assume the risk too.
I’d say that’s where the implementation of “encourage people to spend who might not buy outright” comes in - if Klarna costs slightly more, or nets out as even with other payment providers, the benefit to using it is if you can convert consumers who wouldn’t have otherwise spent.
I don’t think that’s right: For starters PayPal is already at the very expensive end of the scale when it comes to payment providers. Stripe - while cheaper than PP - also tends to be quite a bit more expensive than competitors for slightly larger ecommerce business. More importantly though, that quote seems to compare Klarna’s cheapest band to Stripe’s most expensive one.
I guess I mean “Ballpark” loosely…
Stripe’s range looks to be 1.5% - 3%
PayPal - 1.2% - 3%
Sum Up - 1.7%
Square - 1.75% - 2.9%
Klarna aren’t as transparent as anyone else I can google, but they say “Up to 3.99%” for the “pay in instalment” transactions - and I’m sure the rates are variable within that much like the other solutions are.
This is a US story, but I fully expect this trend to occur here. The FCA are already looking at tightening the rules on BNPL in the UK.
Martin Lewis has already basically said and setup a petition to the government so that these services are regulated, capped etc. so it’s only a matter of time before it’s over here.
The retailer will pay the lender a fee - they will probably be quite happy to do so as they will sell a lot more.