Payments giant Klarna has recently announced the launch of a physical Klarna card in the UK, letting consumers ‘pay later’ for their purchases everywhere in physical stores.
The card will launch with Klarna’s ‘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 ‘buy now, pay later’ (BNPL) for all of their in-store purchases.”
When canvassed by The Fintech Times, reaction from the industry shows that there are still misconceptions surrounding buy now, pay later, consumer protection and its regulation. While BNPL is a growing industry, Klarna is perhaps ahead of the trend in that:
- Klarna is a fully licensed bank and offers regulated and unregulated credit products which means that it is still supervised by the FCA even though its BNPL products are not covered by the consumer credit act.
- The Klarna card is a regulated payment product meaning that the company will have to answer to the FCA and so must be transparent, fair and not misleading in how it communicates with customers.
- Klarna ability to differentiate itself from other credit products means that there will be no late fees or interest attached when using the card.
Interestingly, a recent consultation by HM Treasury in January described BNPL services as “inherently lower risk” than other forms of credit because it charges no interest.
The industry reacts
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.”
Though customers looking to get a Klarna card will undergo affordability checks and are informed of the implications should they miss payments, Myron Jobson, personal finance campaigner, interactive investor, is concerned that there may be too much overlap with traditional credit. He said: ““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.”
While those in the fintech industry believe BNPL has its own pros and cons, many are in agreement that education of the finance industry as a whole is still necessary. Recent surveys have found users conflicted, as research by Which? found most users admitted to skim reading the T&Cs or simply ticked a box to say they had read them.
Yet in a recent YouGov survey, nine out of 10 consumers were fully aware that BNPL needed to be paid back and a spokesperson for Klarna revealed that over 40 per cent of its customers make payments ahead of the due date.
Popular among consumers
Still, Ian Bradbury, CTO, financial services at Fujitsu UK&I believes the card will be very popular among 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 BNPL firm Klarna introduced physical cards to expand its services”, he said. “It 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.”
While David Jarvis, CEO & co-founder, Griffin, said: “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.”