Over the past few months, Go Fund Yourself’s Alice Tapper has been investigating the stories of people who have been misled by ‘Buy Now Pay Later’ products such as Klarna.
By looking into the regulatory gaps which desperately need closing, Alice hopes to protect young consumers from making financial decisions that could take years to recover from.
Alice argues “without change, there is a legitimate concern that we’ll see young consumers who already face the reality of a debt crisis and recession, under unmanageable financial pressure.”
Key Klarna facts
As part of Alice Tapper’s campaign, she’s shared the following facts:
- 23% of 18 to 24-year-olds have turned to Buy Now Pay Later services since the start of lockdown.
- A customer’s order value increases by 55% when shopping with installments
- 45% of young people who’ve used a BNPL scheme in the last year say they have missed at least one payment.
Her research uncovered the following:
Consumers are accidentally using Buy Now Pay Later products without knowing that it’s debt
Buy Now Pay Later is the default payment option on several sites and there is no risk wording at checkout.
Many customers are using Klarna as a payment option without fully understanding the potential consequences if they don’t pay. Some sign up with good intentions and assume they’ll pay on time, only to forget or lose track of their payments.
Advertising is often manipulative and misleading
Klarna adverts often claim that using its payment options won’t have an impact on a person’s credit score. They also claim that there’s no interest and no fees.
Neither of these claims are true. While the initial credit check carried out by Klarna at the application stage is a ‘soft’ check and therefore does not harm your credit rating, the consequences of missing a payment can certainly do your credit score harm. This in turn could make it harder for your to access credit in future. Want to buy your own home one day? That’ll be more difficult if your credit rating has been impacted.
Influencers are promoting Klarna without researching it first
Klarna has worked closely with influencers over the last few years. Some of these influencers have failed to disclose that they’ve been involved in a paid collaboration. Others didn’t fully understood the consequences of Buy Now Pay Later products when they originally agreed to accept payment in exchange for promotion. Some are apologising retroactively:
I was approached by Klarna’s PR agency back in 2018 and they asked if we could work together to promote a Corporate Social Responsibility initiative they were working on to help people improve their finances. At first I was excited to get involved, but when I did a little research and learned how Klarna’s payment options work, I felt their CSR move would cause more harm than good. I didn’t want to associate myself with a company that was pretending to care about people’s money while taking advantage of fashion lovers’ inability to read the small print. Shoppers shouldn’t have to read the small print to protect their finances. The risks should be clear for all to see so that they can make an informed decision.
I replied with the following email:
I wrote a piece for Gadgette called “Is Klarna’s Buy Now Pay Later service encouraging young people into debt?” and interviewed several people who’d used it themselves.
In the piece I talked about how this type of payment option would have been disastrous for me had it existed when I was younger: “Had Klarna been around when I was at university, it would have caused utter mayhem for my finances. Credit cards always seemed like something for grown ups with full time jobs, mortgages and mouths to feed, so I avoided those like the plague, but Klarna seems different. The process is effortless, its branding is modern, and it has strong connections to popular and trusted online retailers like ASOS. The website doesn’t scream debt, financial uncertainty or bankruptcy in your face and it doesn’t seem as sinister or exploitative as other types of easy-access credit such as pay day loans. Looking at Klarna’s customer service section, it’s also incredibly difficult to find details regarding fees and the impact ‘Slice It’ can have on your credit score.
“I can see how young people could easily get sucked into a cycle of buying things they can’t necessarily afford while worrying about the consequences later.”
And that’s exactly what’s been happening.
What needs to change?
On the official KlarNAA page created by Alice Tapper, she suggests the following solutions:
- The Advertising Standards Authority (ASA)/Financial Conduct Authority (FCA) should develop new standards around the advertising of Buy Now Pay Later products
- Appropriate risk wording to be included on all ads
- Influencer guidelines must be updated to ensure financial products are promoted responsibly and risk working is included
- Retailers promoting Buy Now Pay Later must be held to the same standards and BNPL should never be the default payment option
- All Buy Now Pay Later services must include risk warnings at the point of purchase to inform customers of the consequences of non-payment
- Klarna must amend their ads and information provided on the website to accurately portray the risk this type of payment can have on an individual’s credit score
- Customers must be given guidance at the point of purchase to help them use BNPL services responsibly
- The FCA must demand firms market BNPL as a form of credit/debt
Are you annoyed at the lack of transparency offered by Buy Now Pay Later services like Klarna? Have your finances taken a hit from using this type of payment option? Join the fight in calling for greater regulation.