Klarna: On Borrowed Time and Money?
Whilst buy-now pay-later have become a popular payment method for thousands of consumers shopping online, there have been anxieties and increasing debt concerns when having to pay monthly installments. Payments through buy-now-pay-later reached £2.7bn in 2020 alone (The Guardian).
Some examples of buy-now, pay-later firms include Klarna, Clearpay, Laybuy, Very, Afterpay, Sezzle, Quadpay and Perplay. These payment methods are popular for shoppers of companies such as ASOS, Boohoo, Face Theory, Hugo Boss, JD Sports as well as furniture companies. Often, consumers are presented with multiple buy-now, pay-later sites and apps, which complicates the clarity of how these payment plans work, leading to poor-informed decisions being made. This combined with the fact many consumers are spending more online due to the pandemic adds greater risks associated to this type of consumer behaviour.
The Risks Of Buy-Now, Pay-Later:
Although this became an easy method for young people and adults to purchase multiple products whilst not worrying about the cost until later, it also meant that more people found themselves indebted to several companies and shops. Klarna is known for sending letters to customers by post, ensuring they have nothing to worry about and their payment deadlines have been extended. However, what customers are not told is that their credit scores are affected due to late payments being recorded. The lack of transparency in this process risk harming the financial health and capability of individuals, particularly younger groups.
How The FCA’s New Regulations Will Benefit Consumers:
Young people will not land themselves in unnecessary debt, thus avoiding credit score deficiencies
Increased transparency and better understanding of products and payments
There will be ‘affordability’ checks to ensure that customers will be able to pay for the products on time, reducing the strain of being in debt to companies
Although these changes have not yet been implemented through legislation, the Just Finance Foundation welcomes the proposed buy-now, pay-later reviews and changes to protect consumers from further financial harm.