Klarna has become ubiquitous on the internet and in physical shops these days, with shoppers by now well aware of the option to “buy now, pay later”.
The wisdom of buying, say, a jumper or a takeaway on tick is questionable to say the least. Klarna’s product is relatively straightforward: make the full payment in 30 days or within three months over three instalments and you should be fine. Miss payments though, and that is where hefty fees can kick in.
It is easy to conclude that such a product is aimed at customers working with lower incomes. The fact that there is no predetermined cap on how much credit you can build up means that overspending is a real danger.
So Cantillon noted with interest the comments from Klarna chief executive Sebastian Siemiatkowski this week in relation to US president Donald Trump’s plans to cap credit card fees there.
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“If you look at the Fed’s own data, it shows that credit card rewards redistribute $15 billion annually from the poor to the wealthy, and that high FICO consumers gain $200 a year, subprime consumers lose $55,” he told Bloomberg TV. “That isn’t financial product. It’s a regressive tax with airline miles.”
Regardless of whether he is right or not, perhaps Siemiatkowski is not the right messenger.
Klarna is competing directly with these credit card companies, and has its own problems.
Stories about people on lower incomes using Klarna to pay for essentials and getting in over their heads in debt are numerous.
From the outside, there are few indications that buy now, pay later is much different to credit cards. At least it is obvious that credit card debt can impact a person’s credit rating. That isn’t always the case with buy now, pay later.
Klarna has its uses but it’s a bit rich for it to make out itself out as a hero while credit card companies are the villains in this case.
