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Inside Klarna
Jun 17, 20215 min read

It’s time for the old banks to face facts.

by Alex Marsh

Over the past few days you might have seen our eye catching #WhyPayInterest  light projection campaign – the largest ever in the UK! – over London’s County Hall and 75 other iconic sites across the country.

We wanted to make our point very clear. The banking system in the UK has been broken for way too long. Customers have complained for years about the terrible if not nonexistent customer service of big banks and also their unfair business model. And let’s be clear, we should not be ok with that. We, as consumers, savers and borrowers simply deserve better. 

Nobody is interested in paying interest.   

Last year alone, credit card companies made £660,000 every hour from interest and fees charged to UK consumers. Even worse, these companies make the most profit from the most vulnerable consumers. Credit cards are free for those who can pay off their balance in full each month, but they come at a hefty price for those who cannot or who are considered ‘high-risk borrowers’. 

But consumers understand that there is something wrong with this model –  it’s enough to have a look at Trustpilot. In the UK, the average rating of the ‘big four’ banks is a shocking 1.5 out of 5.0, with complaints of ‘rude’, ‘bad’ or ‘useless’ customer service. Meanwhile many of the challenger banks, including Klarna, are rated as excellent scoring well above 4. That’s a fact, and it’s time for old banks to face it. Consumers are preferring fintech companies and challenger banks for everything from managing their finances to getting credit. This of course includes payment options such as buy now pay later (BNPL). 

Focusing in on BNPL specifically, I strongly believe this is a better and more sustainable way for consumers to use credit when they need it. Consumers get flexibility to defer or spread the cost in a structured way and with no interest – and in Klarna’s case, no late fees with our Pay in 3 instalments and Pay in 30 days products – so they never pay more than the price of the purchase. But don’t just take our word for it. In a recent survey among Klarna’s customers, over 70% said they use our Pay later products because we charge no additional fees with our Pay in 3 instalments and Pay in 30 days products, and over half agreed that Klarna is a cheaper and better alternative to credit cards. 

Capital Economics estimated that in 2020, consumers saved £144 every minute in interest charges alone by using BNPL instead of credit cards – over £76m in total for the year. That’s a lot of money that went back into consumers’ pockets rather than bank profits!

Scrutiny is necessary, so is setting the record straight.

As a new and fast-growing sector, BNPL is often in the public spotlight. We of course welcome this scrutiny. Through scrutiny and competition we are challenged to keep learning and improving on our offering – whether that’s the transparency of the key terms of our products at the checkout or the protections we give to consumers should their circumstances unfortunately change. That’s also why we wholeheartedly support regulation of the BNPL sector. We believe that proportionate regulation built around target outcomes will be good for everyone – consumers, retailers and the BNPL industry itself. 

But to be fair, amongst this scrutiny, many of the concerns being raised against Klarna are based on sloppy data unsurprisingly fed by the same organisations who are incentivised to keep propping up the ailing credit card industry. The truth is these headline grabbing misconceptions are often so far away from the experience of over 14 million UK Klarna customers. That’s why we wanted to get the facts out there with our recent ‘Discover the Truth’ campaign. 

And the truth is that we are one of Europe’s biggest banks, the vast vast majority of our customers use our products responsibly, the average age of our customers in the UK is now 33, our fastest-growing age group is between 40-54 and the typical value of the purchase made using Klarna is around £75. We gain nothing from missed or late payments and we check the financial profile of customers every time they make a purchase.

What’s becoming clearer as consumers make the shift away from credit cards, is that  BNPL, and Klarna as the market leader in the UK, are here to stay. We are challenging the old way of doing things, fighting for better banking, because that will help consumers the most. And the exciting part is that BNPL is just the beginning of our journey, as we see Klarna playing an increasingly important role in the future of consumer finance and retail banking in the UK.