In our app-driven world, convenience is king. We like things instantaneously, mindlessly sorted, at the tap of a smartphone. When we’re online, we expect the consumer experience to be fast, easy and on our terms.
This is what Klarna, a Swedish digital company, is banking on. You may have seen them when paying online at ASOS or Topshop. As I was considering a corduroy pink boiler suit in the Topshop Black Friday pre-sales, under the Add to Basket button, a rectangular box winked at me: “Pretend it’s pay day! Pay ⅓ now and the rest later”. That’s Klarna. 60 million shoppers have used Klarna in Europe and North America since in launched in 2015, and there were 9 million new users in the first six months of this year. In the UK, (it arrived here in 2017), the number of new Klarna users is growing by 25,000 each week. JD sports, Swoon and most recently H&M have also signed up to the service.
Klarna is the millennial store card, designed for a generation who want things as easily as possible, or in Klarna’s words “a frictionless buying experience”. If you pay through Klarna, (you have to be over 18) you have two choices. Firstly, you can “Pay later”. This means that with a click of a button, I could order that pink corduroy boiler suit, maybe in a couple of sizes, plus a navy turtleneck and at this point, I’m not paying for anything. I’ll receive the items, try them on, and then send back what I don’t want. I then only pay for what I keep. Then there’s the option to “Slice” it, which is instalment payments. They've recently introduced Slice in 3.
Lauren, 25, has used Klarna when shopping on ASOS. “I tend to use it for sizing, ordering a few of the same items in different sizes. The normal returns process can take a long time and it can be annoying waiting for the money to be refunded into your account”. The returns process is exactly like returning any ASOS purchase before receiving an email from Klarna updating you on what you owe.
“I try to limit myself because I think it’s very easy to not see it as real money, especially if you think, oh, I’ll pay next month after I’ve been paid”. Lauren says she’s quite good at managing her money but otherwise, she thinks it could be problematic but she counters, she’s only ever had a good experience. 20-year-old Madeline tweeted that it was “the bane of her life”. When I asked her why she said: “Sometimes I forget what I’ve ordered and then I have to pay the bill” she says “but I try and be sensible and not do this”
If you do forget to pay, or if can’t pay, according to Klarna, there are no fees or interest payments in the initial 14-30 day re-payment window. Reminders are sent, put in calendars and the company claims they will work with customers, flexibly, to help them pay back what they owe. If that’s still not possible, at 120 days, debt collectors step in. For Slice, the highest APR rate is 18.9%, and there are three stages of £12 fees before being referred to debt collectors. Furthermore, Klarna will not accept custom from those who had problems making payments with them in the past.
Earlier this year, the Young Woman’s Trust released a study that found on third of 18-30 year olds believe they will still be in debt by the time they are 40, with young women particularly affected. 40% of young women, compared to 29% of young men, say they can’t make it to the end of the month, having to dip into overdrafts, borrow from parents or take on over time. This is also part of a broader problem with household debt in the UK “worse than any time on record”. So what responsibilities do retailers and Klarna have when it comes to providing options for people to potentially shop so easily before they might actually be able to afford too?
“It is so much harder to keep on top of spending when it is completely frictionless”, says Laura Whateley, Times journalist and author of Money: A User’s Guide, “Shops and companies know this and are working to make payments as mindless as possible, ostensibly out of convenience but also because they know that making check out super speedy means they will make more money. Klarna makes it so easy to check out you don't even need to pay up front. So I definitely think it could be dangerous for our bank balances because it will encourage us to spend more than we have without really thinking about it.”
Klarna’s most popular service, Pay Later, of which there are currently one million active users in the UK, comes with a “soft” credit check made at point of payment. Whilst Klarna stress they encourage responsible spending and do all they can to help customers pay back what they owe, including having a vulnerable customer unit, Whateley worries that we’re not clued up enough on what a bad credit rating actually means “Lots of people have no idea how their credit history works, but payment defaults will stay on it for six years, and how good or bad your credit history is has a huge impact on how likely you are to be able to get a mortgage. You could find that the dress you forgot to pay for within the time frame - how many times have you/ I forgotten to send back a parcel to ASOS within 30 days? too many! - means you are unable to buy a house for years”.
“What could also catch you out is that every time you apply to "Slice it" Klarna does a “hard” credit check. Too many hard credit checks will be counted as negative on your credit file, which again means it might affect your ability to get a mortgage, or even something more simple like mobile phone contract or bank loan with a decent interest rate”.
So if you’re good with your money, perhaps this might be a easier way to try before buy but if you’re not, think long and hard before you click on that winking box. When we need to think most carefully about what we spend in terms of our own budget, but also the environment, let’s make sure we are buying what we really want to, not just what we can.