Klarna is the cool lender getting Gen Z hooked on debt


t’s so easy to spot the hot pink Klarna logo winking at you from the bottom of your pricey back-to-workwear Asos order that you swear is actually flirting with you at the online checkout. It’s easier still to find yourself jumping on its cutesy bandwagon when you know the free ride that’s in store: an option to buy what you want now, pay for it later, which has grabbed the attention of cash-strapped would-be shoppers during lockdown.

“Absolutely Klarna’d up to my eyeballs thanks to Covid,” grumblebrags one tweet typical of Klarna’s fanbase.

But as Klarna has emerged as the go-to payment system for both savvy spenders and cash-strapped millennials alike, critics have called on the fun-focused Scandi start-up to take on more responsibility as the market leading lender of the buy now, pay later economy.

It has the look of a company that makes fantasies come true. Its CEO and co-founder, the unrelentingly handsome 6ft 2in 38-year-old Swede Sebastian Siemiatkowski, was described by Elle Magazine as a “Disney version of a tech entrepreneur prince”. Nina Sundén, his wife, is credited with helping overhaul the nascent company’s branding image (although CMO David Sandström, steered it to all hot pinks and pithy “no drama, just Klarna” slogans in 2018).

Snoop Dogg is an investor (alongside Visa and fashion group Bestseller), and fronted an ad campaign surrounded by plush Afghan hounds entreating you and I to “get smooth” about spending. It is a lender letting the good times roll just that little bit further — “enhancing the overall shopping experience”, as Luke Griffiths, general manager of Klarna UK, puts it.

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Last year they set up an invite-only pop-up pub for journalists, the Klarna Arms, in Oxford Street to woo the fashion world; a “pup up” dog salon in Bateman Street; an astrological readings evening in Covent Garden. At Gilles Peterson’s We Out Here festival, they handed out branded pink bucket hats

Klarna — strutting ahead of rivals Afterpay, Affirm, Clearpay, Laybuy and PayPal Credit — has had a good pandemic: while clothing sales plummeted by 50.2 per cent in April, online sales enjoyed a record 30.7 per cent rise (buying behaviour changed in four stages, Griffiths says, with fashion retail sales dropping but running shoes sales up 105 per cent increase, beauty product sales up 60 per cent and home garden sales up 190 per cent).

Last year, Klarna became one of the largest fintech start-ups in Europe — valued at $5.5 billion

Yet profits come not from customers — significantly, Klarna does not charge interest on repayments and says that only 1 per cent of its 8.5 million UK users have defaulted on payments — but from retailers, who pay Klarna a slice of each transaction, convinced by statistics showing a 30 per cent increase in the average online store’s orders and a 34 per cent increase in the average spend.

Only two years ago, Klarna became one of the largest fintech start-up in Europe after a new funding round valued the Swedish payments group at $5.5 billion. In September, its value had doubled to $10.65bn, and this week it was announced that the group had tripled in value again over the last six months, to $31 billion thanks to a new capital raising. Klarna has now declared itself the most valuable unlisted fintech company in Europe and the second most valuable in the world.

As a payment option, it is bolted on to thousands of trusted online and high street shops from Asos to SpaceNK to BooHoo, Halfords and Ikea to Samsung. Still, the ability to rack up eye-watering bills is hardly negligible. “I just wanted something to sit on,” says school teacher Rosie, 27, who used Klarna to buy two sofas for £1,600 and split her payment over a year — when they arrived, she immediately hated them both.

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Kate (not her real name), 28, was drawn to Klarna expressly because they advertise the fact that they don’t charge late fees and it “just seemed really user friendly”. Klarna, after conducting a soft credit and background check, allowed her a £300 spending limit. “It was just so easy to set Klarna as the default payment option on sites like Asos,” she says.

Kate, who suffers from diagnosed anxiety and depression, quickly found that her mental illness led her to forget repayments. Klarna said that prompt messages and alerts would be sent out when it was time to pay but she claims never to have had reminders from them — and her bill was passed onto a debt collection agency. When she called Klarna she claims the man she spoke to “opened my file, audibly laughed and commented on how behind I was on payments. I felt so ashamed and embarrassed I just wanted to ground to swallow me up.”

“We are extremely sorry to hear about Kate’s experience,” Griffiths says. “This does not meet our expectations for customer service and was doubly unfortunate because Kate did exactly the right thing by contacting us to talk through her concerns about making the payment. When a payment becomes overdue we send multiple reminder emails and after a period of several months engage a debt collection agency to help us ensure that the payment is made. We try at all times throughout this process to act with empathy as we understand that people’s circumstances do change.”

The Daily Telegraph also reported how a 16-year-old girl amassed more than £500 in debts shopping at online fashion retailer Asos after opening a buy-now-pay-later credit account with Klarna, using her own name and address but entering her mother’s date of birth, bypassing the website’s security and credit checker (Klarna said that this constituted fraud, which it takes very seriously, and that it had immediately blocked both mother and daughter while it investigated).

Accusations on social media that missed BNPL payments can impact credit scores are robustly rejected by Klarna. “You just don’t associate this pink, optimistic brand with the serious subject of debt,” says Alice Tapper, a financial campaigner, who has launched a campaign, #KlarNaa — calling for better regulation to protect young and vulnerable consumers from “misleading” buy-now-pay-later products. She’s received hundreds of messages from distressed young people, particularly in lockdown, when one in six 18 to 24-year-olds have turned to buy-now-pay-later services. They are useful when used and regulated well, she insists. But while Klarna is regulated by the Swedish Financial Supervisory Authority, Tapper has called for all buy-now-pay-later products to be regulated in the UK. On Klarna’s pay-later products, there is no legal compulsion to include risk wording on adverts and at checkout, she says, “no counter balance to this genius marketing”.

One user I spoke to was chased by debt collectors because she’d failed to pay a £2.99 delivery charge owed to Klarna. Last week Stella Creasy, the Labour MP for Walthamstow who tackled payday lenders Wonga and QuickQuid, wrote to the Financial Conduct Authority and the Advertising Standards Authority to raise the issue of BNPL.

“With lending up over 20 per cent on platforms like Klarna no wonder they can afford to pay so many influencers to promote their company — but whether on Instagram, TikTok or Facebook, glossy pictures and videos can’t hide the problems with the small print which claims ‘no fees’ are involved,” she told me. “Little wonder many users are now coming forward to report getting into difficulties. The FCA has announced payment freezes but we need to stop younger customers getting into problems in the first place — that’s why I’m calling on them and the Advertising Standards Authority to urgently investigate how these companies market their products and the information they give consumers who think these are risk-free ways of spending in lockdown.”

Retailers pay Klarna a slice of transactions, convinced by stats showing a 34 per cent increase in user spend

To be so alluring is clearly a double-edged sword for Klarna, who point out to me the work they do promoting financial literacy and ensuring that those who run into financial trouble are assisted with new repayment plans. There is KlarnaSense, a resource tool that promotes smarter spending, shopping personality tests and shopping psychology literature. “We know that sometimes it’s easy to get over-excited and a little carried away with those impulse purchases,” offers the site. “So slow down those millions of thoughts, take a deep breath and find that bit of zen, then ask yourself: do I love it? Will I use it? Is it worth it?”

Griffiths insists, as a responsible lender, Klarna has an “obligation to educate”. Those who complain on Twitter are swiftly contacted by the company’s peppy social media team. Griffiths says that they dutifully assess default rates, credit scores and other biometrics that might indicate a customer will run into trouble before accepting them into the Klarna community — and that they reviewed their global lending policies and hardship (default payment) policy three times a week during lockdown to address the changing economy, while payment holidays were provided.

He adds that if people have mental health issues, they try to refer them to appropriate charities. It’s a bank, you hear repeatedly, that prides itself on “talking”, “connecting”, “listening”. Klarna wants to be my friend — a stupidly handsome friend that wants to drag me out to parties in the right clothes.

“We are also witnessing the visual and verbal language of brands and sectors change,” says James Ramsden, executive creative director at Coley Porter Bell, Ogilvy’s specialist branding agency. “Yes, people still want financial brands to feel trustworthy and stable, but they also want them to be easy to do business with, friendlier and more contemporary, less formal. The ultra-traditional look and feel of institutional banks is being complemented or replaced by brands that are friendlier, fresher and more efficient.”

There’s some wisdom, perhaps, in trusting a friendly lender that wants to boost this desperately flagging economy. But conventional wisdom strikes a more cautious tone: friends don’t lend friends money, after all.

This article was amended on 06/08/20 to make clear that The Klarna Arms was a closed, invite-only event for journalists and not open to the public.


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