Klarna is going to charge fees to customers in the UK that miss payments. From the mid March 2023, these will be:
- £5 a late fee;
- no more than two late fees will be charged on an order;
- late fees cannot total more than 25% of the value of an order.
This is a major shift for Klarna, who has so far charged late fees in other countries but not in the UK.
Clearpay and Laybuy charge £6 for a late fee. So Klarna’s will be slightly less than its largest competitors.
Why Klarna is starting to charge late fees
Alex Marsh, Klarna UK’s CEO says:
Not charging fees feels consumer-friendly, but we’re worried it drives the wrong behaviour. Our data now shows that a total absence of late fees actually leads to less favorable outcomes for customers: with less reason to pay on time, customers are more likely to miss a payment. In the Netherlands and Belgium the introduction of late fees improved Klarna’s on-time payments by 20 per cent.
We’ve concluded that having no fees is not in the best interest of our customers.
So they are doing this for the benefit of their customers. Yeah right…
If this pattern is repeated in the UK, it will have 20% fewer late payments to deal with. Which will save Klarna a lot of money chasing the payments.
Fewer late payments are good though, aren’t they?
It is good if people choose to buy less using Klarna so they can be sure they can make the repayments on time.
But it isn’t clear that this will be the result of these new late fees.
Instead some Klarna customers may stretch to make a payment on time and avoid a fee. If this leaves them too short of money, in the next few weeks they may end up using Klarna again not for something nice to have but for essentials. Klarna isn’t just used for big purchases or fast fashion. The Klarna card can be used at any shop that takes Visa payments, including supermarkets.
So that’s a double win for Klarna. Fewer late payments and more purchases.
And many Buy Now Pay Later shoppers already use some form of credit to make a BNPL payment. Citizens Advice found last year that more than 40% of BNPL customers have borrowed money to repay a BNPL, mostly by using a credit card or their overdraft. And that rises to over half the customers aged 18-34 – a group that has been badly hit by cost of living increases.
If Klarna’s new late fees mean more people do this, then that’s good for Klarna and not good at all for its customers.
Klarna’s new Customer Recovery program
Klarna says it will be using the money from the new fees to fund a new “customer recovery program” that will launch later this year.
In the program, Klarna will contact customers with long-overdue payments and offer to waive 50% of their balance. It says “eligible customers” will need to pay the remaining half before using Klarna again, this will help those customers get back on track with their money and avoid debt collection.
It isn’t clear however who Klarna will decide is eligible. All late-paying customers are going to be subsiding the ones that Klarna decides can have this break. And the ineligible ones will have higher debts being sent to debt collection because of the new late fees.
Making the quicksand even more sticky
Citizens Advice has warned:
Buy Now Pay Later borrowing can be like quicksand – easy to slip into and very difficult to get out of.
You have to be very optimistic to think adding late fees will magically improve this by causing people to borrow less. It is more likely to make things harder for people already in difficulty, causing them to get deeper into debt. The quicksand becomes even harder to escape from.