Klarna buy now pay later to be regulated

Internet shoppers will have noticed the growth of Klarna as an online payment method, including Buy now pay later (BNPL) methods.

Now the Government has announced that Klarna (and other BNPL companies such as Clearpay and Truelayer) wll come under the supervision of the Financial Conduct Authority. The announcement was surprising, coming only three weeks after the Government defeated an opposition motion to regulate the BNPL industry.

This means that the BNPL companies will be required to carry out more detailed credit checks similar to checks carried out by banks and credit card companies, and will allow the Financial Ombudsman to investigate complaints.

BNPL has grown rapidly since the start of the first lockdown, raising concerns that customers may be borrowing beyond their means. It is also true that many younger customers have no previous experience of credit. There are generally no warnings to customers from the BNPL companies

Klarna carries out “soft” credit checks, and passes bed debts to collection agencies if payment is not made.

Klarna was a Swedish tech startup in 2005, when online shoppers were still being sent invoices in many cases. Although the tech, banking and retail sector were sceptical about the venture, they were able to raise the funds needed to launch. The company was profitable within six months, and by 2007 they expanded to other Scandanavian countries, and by 2010 to Germany, The Netherlands and the USA.

Klarna has now raised over $2bn in investment and is valued at over $10bn.

Customers, once subscribed, are offered late payment options with no added fees, interest or late payment charges. Merchants are paid immediately, whether the customer is able to complete the payment or not and pay a fixed transaction charge and a membership fee. Customer card details are stored, making the checkout process quicker.

BNPL allows customers to see goods before paying. If goods are returned they simply don’t pay, rather than having to apply for a refund.

Merchants benefit from reduced administration charges and analytical tools. It is claimed that using Klarna leads to an increase in orders of over 40%, an increase in the average value of orders, increased customer satisfaction and a higher conversion rate for sales from mobile phones.

Klarna has said that it is happy to operate with regulation. As it is now a bank it is already comfortable operating within a regulatory environment and says that financial regulation “has not kept pace with new products”.

Some advertisers using Klarna. Don’t borrow more than you’re sure you can repay.

Advertiser using Clearpay

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