Have you ever tried to fix something, only to make it worse? This is the law of unintended consequences and, right now, some are dangerously close to falling into this trap.
There is currently a healthy debate on whether to regulate the buy now, pay later (BNPL) sector – a move which Klarna wholeheartedly supports. The ASA recently updated their guidance on buy now pay later and the FCA is due to publish recommendations following a lengthy review later this month. John Glen MP, the Economic Secretary to the Treasury, recently said he stands ready to take ‘swift and proportionate action’.
Amongst the suggestions is from a small group of those participating in this debate are calling on some retailers to remove buy now, pay later services from their checkouts until the government has introduced regulation. This is not only unnecessary and entirely disproportionate but risks causing far more harm to consumers than it solves.
In the following blog, we outline some of the reasons why Klarna is essential for shopping in 2021.
Now is not the time to push consumers to high-interest credit cards.
Klarna is a fully licensed bank which amongst a wide range of payments and banking products globally, we provide a no fee, no interest transparent alternative to expensive credit cards in the UK. Removing this option for consumers in the UK would force consumers to use credit cards and could subject their purchases to high interest rates and late fees. These products are intended and incentivised for consumers to stay in debt, and their model is built to earn income on late payments where the consumer incurs interest and fees.
A cynical reader might be thinking, “Well you would say that. You’re Klarna”. But don’t just take our word for it. Martin Lewis, who is campaigning for regulation of the industry, told the Treasury Select Committee, “it is the cheapest way to make a one off payment. It can be used well.” And on Christmas Eve, the charity Housing Crisis London tweeted, “Klarna is a life saver for many people. It is so much better than a credit card or payday loan or dodgy money lenders. It charges no interest, they have good customer support online and phone Don’t knock yet, it helps people with or without money.”
We must protect consumers during the debit revolution.
We are living in a debit-first economy. Consumers now use debit instead of credit cards for most of their spending and paid down over £10bn in outstanding credit card debt in 2020 alone. This is surely a good thing? That is £10bn which consumers will not have to pay interest on, and will never roll over month after month. Now, of all times, is not the moment to put consumers on the hook for higher interest payments.
This represents a wider consumer shift in responsible spending, millenials on average are saving 36% more compared to older generations and why they’re opting for our interest-free, no hidden fee products to help with their budgeting.
As consumers now clearly prefer using debit, we provide some flexibility on specific purchases. Our products support and protect consumers – we assess each and every transaction and provide transparent payment plans that empower consumers and their budgeting needs, splitting payments into manageable amounts over a fixed period of time. If a consumer misses a payment, they can no longer purchase until it is paid, this is a consumer protection that credit cards would never implement. Equally, one of the downsides for consumers using debit cards when shopping online, is if they decide to return the goods, they then need to wait for lengthy refunds, we solve for that.
Bringing the in-store experience online.
Over the last 12 months, online shopping has had to adapt to keep pace with consumers changing expectations, and the requirements that have been thrust upon us by the global pandemic.
Digital infrastructure projects were suddenly pushed to the top of every retailer’s technology stack, as the high streets shut-up-shop and an afternoon at shops to find the items you’ve been after was, for a long time, a dim and distant memory. Many of our most beloved department stores had their shops boarded, shuttered and in many places, stock was simply gathering dust.
Consequently, the online shopping experience had to adapt (and fast) with new technology developed and adopted at a faster pace than in years gone by to fill the voids that in-store used to inhabit. The online consumer was no longer a digital native, and the typical online shopper forever changed. Waitrose alone reported that the number of shoppers ages 55+ trebled in 2020.
Consumers refused to compromise simply because they are unable to visit a physical store. Will it fit, is the quality alright and which colour should I select, were no longer questions that consumers wanted to weigh up at the checkout, and removing items from their online basket for a delivery in a few weeks time wasn’t an option (the postal service was already creaking with all the additional online deliveries). Instead the key to the premium eCommerce experience centered around the holy grail, the ability to try before you buy, bringing the fitting room into your sitting room at no extra cost.
Whilst this method had been a widely adopted method of payment in Europe for many years, and in the US, high end boutiques were trialling bringing the showroom experience into their clients homes, the ability for the majority of consumers to afford this luxury had up until recently been out of reach. At least that’s one thing we can thank 2020 for.
Protecting consumers from rising and ever more sophisticated online fraud.
With the pandemic, came the opportunistic online fraudster. Experian reported that in April (the first month of the UK national lockdown), online fraud rose 33% as ever more sophisticated criminals exploited a boom in online shopping.
Klarna enabled consumers to feel safe and secure when shopping online. A familiar and trusted payment icon, with one time passwords at checkout, and a sophisticated Buyers Protection Policy saw us rise into the Top 10 most loved Financial Services brands in the UK.
Klarna’s Buyers Protection Policy, similar to that offered on a credit card (but handy for the 61% of millennials who do not own one), ensures no consumers will be asked to pay for a purchase they do not receive or that they are not happy with. When shopping online with Klarna we’ve got your back.
Retail is a cornerstone of the British economy and must be supported.
UK retailers employ 2.9 million people in the UK and are responsible for a third of all consumer spending. And it is one of the sectors that has been hit hardest by the pandemic. High street shops have been forced to stay shut and when they have been open, consumers have been wary of venturing out into crowded places. The effects can be seen on any high street, with retailers both large and small struggling.
We should be finding safe, responsible ways to keep retail in business while protecting consumers. That’s precisely what Klarna does, by reducing the risk out of shopping online for consumers.
Consumer behaviours have shifted and we all have a responsibility to further protect them.
Consumer expectations are shifting and the regulators are doing the necessary groundwork to adapt, with the ongoing work of the Woolard Review.
The FCA has already been protecting consumers in this space, notably by providing guidance to buy now pay later providers on handling payment deferrals due to coronavirus last year.
Equally important, the ASA is driving positive change in this our sector, demonstrated in their recent update to the buy now pay later guidelines. At Klarna we frequently leverage the ASA’s bespoke copy advice service, a superb and free tool and we encourage all our competitors and partners to do the same.
For our part, at Klarna we are committed to continuing to drive high standards in the industry with, for example, our guidelines on responsible promotion for merchants, partnerships with charities such as StepChange and CALM, and continued support for all consumers affected by Covid-19 or those who might need additional flexibility with their payments. Not to mention, establishing an influencer council to define better guidelines for the use of influencers by financial services businesses.
All this work is designed to protect consumers as they continue to look for safer alternatives to the traditional open-ended, revolving credit products that our parents were used to. Our focus is on initiatives that positively support and protect consumers’ best interests.