Soon, the process to regulate buy now pay later (BNPL) will enter a new phase, with the opening of a Government consultation on the scope of regulation. We have said very vocally for months that we are wholeheartedly in favour of regulation of our sector. We believe that proportionate regulation will be good for consumers, retailers and good for the industry.
As the regulatory process kicks on, we will see a fresh crop of online surveys from a range of interest groups in support of their views on the sector. Often these will be quite polarised. Sometimes even sensational, to grab attention to get their views across.
Context is king.
To properly understand what’s going on with BNPL and what’s needed from regulation, we need facts and context. Like the fact that millions of people use these products and the context they still represent only 2% of credit card purchases. And that the vast majority of customers use BNPL successfully and find it a helpful addition to their financial tools.
BNPL enables consumers to spread the cost of a purchase without paying interest and, in Klarna’s case, no late fees with our Pay in 3 instalments and Pay in 30 days products. All else being equal, we absolutely believe it is better for consumers to have access to an interest-free way to spread the cost of their payments.
Many agree with us. More than 14 million UK consumers, for a start. We recently surveyed 7,000 of them to ask why they use Klarna. ‘Because Klarna’s Pay in 3 instalments and Pay in 30 days products don’t charge additional fees’ was cited by three-quarters of respondents. Half of respondents described Klarna as a cheaper or better alternative to a credit card and two-thirds described Klarna as a payment method they trust. This is at odds with some descriptions of buy now pay later you may read in the press.
The positive role of buy now pay later is increasingly recognised in regulatory and Government circles too. In his report recommending BNPL regulation, which we support, Chris Woolard identified the lack of availability of alternatives to high cost credit as a key issue to be addressed.
On announcing the results of the ‘Woolard Review’, City Minister John Glen MP said, “Given that unregulated Buy-Now-Pay-Later products are interest-free, they are inherently lower-risk than many other forms of credit and they can also be a useful tool for managing personal finances and smoothing out the cost of bigger purchases”.
We agree. In a world where banks are charging up to 49.9% for an overdraft and average credit card fees are around 20%, BNPL, which provides financial flexibility with no interest (or fees with Klarna), is surely a valuable benefit to consumers.
Of course, BNPL should be offered responsibly and transparently. That is exactly what we do. It’s why we score 4.3 (out of five) on Trustpilot and receive fewer than 4 complaints for every 10,000 purchases made with Klarna. This is important context you don’t always get from sensational survey stories.
We work with retailers, giving them clear communications guidelines to make sure they are communicating about our products in a responsible way. These guidelines are updated regularly and we constantly monitor our partners’ compliance with them. If we find instances where a partner is not meeting our expectations, we contact them immediately and help them to make appropriate changes to the way they communicate about our products.
‘Klarna’ is Swedish for ‘clear’.
The checkout is perhaps the most important example of where we are responsible and transparent. By this stage in the journey, customers have filled their shopping cart and decided how much they want to buy. They are now making the crucial decision of how best to pay for it.
Go to any checkout offering Klarna as a payment option and you will see we provide customers with the information they need in order to make an informed decision. How much they pay, and when, is front and centre. And it’s clear that this is a credit product. This involves more information and more steps than you get with other payment options – including high-cost credit cards which can be used with just one click. Yet more important context in this debate.
Indeed, once approved for a credit card, you are given a limit of many thousands of pounds which you can spend all at once without any checks or warnings. BNPL is different; we assess each transaction against your circumstances and historical patterns of use. We also monitor for unusual behaviour and even restrict late night spending. Consumers who do not use our services within their means are restricted from further use.
You will never see a credit card company do this. After all, late-payers are their most profitable customers. This is crucial. Klarna is different because we don’t make anything from missed payments or growing debts. We have zero commercial incentive to lend irresponsibly.
Consumers are protected.
For the small number of times when things do go wrong, everyone is protected by the Klarna Buyer Protection Policy which means you have additional protection for a purchase you did not make, did not receive or which turned out to be faulty. Our customer support teams are on hand 24/7 to help. On the rare occasion that customers aren’t happy with their experience, our in-house complaints procedure follows FCA Handbook guidance.
We agree with lots of people in the debate about BNPL that consumers should have access to fully independent review of their complaints by the appropriate authorities. This requires regulation – important context that isn’t always provided – which we are actively exploring. In the meantime, we have created the Klarna Complaints Adjudicator which sits outside of our regular customer service teams to remain as impartial as possible. They assess complaints where the customer remains dissatisfied, suggest improvements to our case handling based on these complaints, and ensure that we always act fairly, effectively and courteously.
Whatever the situation, Klarna is focused on giving consumers useful tools, plenty of information, and the necessary support to manage their spending. That’s a fact.