Klarna Late Fees Spark Uptick in on-Time Payments
Klarna is reportedly sending fewer British customers to debt collectors after introducing late fees.
The share of accounts in the United Kingdom using the Swedish company’s pay-in-3 buy now, pay later (BNPL) service that were later handed over to collections was at 0.84% last year, down from 1.95% two years prior, Bloomberg reported Thursday (April 4), citing company documents.
The reduction follows Klarna’s addition of late fees last year, which a company spokesperson said has led to a 55% improvement in on-time payments. A Klarna spokesperson confirmed the figures when contacted by PYMNTS.
Klarna has been criticized for turning over users who fall behind on their payments to debt collectors, Bloomberg reported. Testifying before Parliament last year, the Financial Conduct Authority’s Nikhil Rathi said particularly vulnerable consumers may not fully grasp the consequences of taking on this sort of debt.
A report earlier this year from the U.K.’s nonprofit Centre for Financial Capability (CFC) showed that 22% of British BNPL users had missed one or more repayments — and thus were forced to pay late fees — in the six months leading to December.
More than a quarter of those users saw their credit scores fall or were contacted by debt collectors, the CFC found.
On the opposite side of the Atlantic, BNPL has gotten the attention of the Consumer Financial Protection Bureau, with director Rohit Chopra saying last month the regulator would take a closer look at the industry.
As Chopra put it, some BNPL providers are using personal data to “induce more purchasing or borrowing” on the part of consumers.
The payment method is popular among consumers in both the U.S. and U.K. PYMNTS Intelligence found that half of American consumers between ages 25 and 44 have used BNPL at least once, with nearly a third of British consumers making installment payments.
Meanwhile, Klarna this week debuted a web page sharing data on its BNPL offerings, such as repayment rate, late fee rates and consumer age demographics.
Klarna Chief Commercial Officer David Sykes called the launch a “call to action” for the financial sector.
“By sharing our data and practices openly, we aim to inspire a shift towards more ethical, transparent and consumer-friendly options,” he said.
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