Klarna CEO insists buy-now-pay-later is better than credit cards

8th June 2021

The Chief Executive Officer (CEO) of Klarna has claimed its buy-now-pay-later model is cheaper for consumers than credit cards and stops them getting into deep debt stating that consumers are better off because it doesn’t charge interest or late payment fees.

The global banking, payments and shopping service, has launched its new Shopping app, empowering users to Pay in 3 in any online shop directly through the Klarna app, without ever paying more than the price of the product. Klarna’s in-app shopping experience now covers the whole retail journey, from inspiration and discovery right through to purchase and return management.

ThE new Shopping feature allows UK Klarna users to shop at any online retailer, regardless of whether they’re partnered with Klarna or not, and split the payment into three interest-free instalments – eliminating the need to use a credit card. It will also integrate monthly budgets and personal spending limit functionalities for users to set and remain in control of their spending.

With an estimated 72% of e-commerce to take place on a mobile device by the end of the year,  the Klarna app will give shoppers everything they need right at their fingertips and never have to juggle multiple apps ever again.

The launch of Klarna’s new shopping feature comes during Klarna’s prominent #WhyPayInterest advertising campaign. The campaign highlights the difference between buy now pay later products and credit cards, challenging the outdated credit model that saw Brits pay £5.7 billion in credit card interest and fees in 2020 alone.

Sebastian Siemiatkowski, CEO of Klarna said: “At Klarna, we believe that no-one should ever have to pay credit card fees or high interest rates and now, thanks to our new in-app shopping feature, they don’t have to. Shoppers now can interact with their favourite retailers without having to leave the Klarna app, to create a smooth, safe and frictionless shopping experience. Our one stop shop app is the future of shopping, it creates a truly personalised and bespoke service for every user and liberates consumers from ever paying more than the price of the product.”

The feature is already live in other markets including the US, Australia and Sweden where the app is used by 6.5 million people on average each month and the pay later interest free feature has been used over 12.8 million times to make a purchase through the app. The app is available to download for iOS and Android mobile devices today.

Commenting on the Launch James Andrews, Senior Personal Finance Editor at  money.co.uk said “Klarna’s new service fundamentally misunderstands the point of credit cards if it thinks it can eliminate them. It also doesn’t seem to understand how they work in practice.”

“The shopping service proudly states that it saves people £144 of credit card interest every 60 seconds, but there’s no interest on credit card purchases for 56 days on a standard card. That means if you split your payment to your card provider in 3 the way Klarna does, you’re saving yourself a grand total of 0.2% interest on your purchases on a standard 20% credit card APR. If you pay up 4 days early Klarna saves you nothing. And credit cards offer far more flexibility than Klarna.”

“The pay in 3 option it offers is something you can’t alter. Instant ring-fencing of the first set of money, then the next two payments coming at set 30 day intervals. With a credit card you pay as much or as little as you like as long as you meet the minimum repayment amount each month. And that’s just the most basic credit card function.”

“Using the right credit card lets you split payments over as long as 21 months currently, with nothing to pay at all for the first 56 days. If you’re making a string of purchases, or buying something expensive, that blows the Klarna offering out of the water.”

“Credit cards can also offer you cashback on purchases , loyalty points with major retailers, Avios or other travel perks for when the skies reopen and extra protection thanks to Section 75 of the Consumer Credit Act.”

“Klarna currently doesn’t report spending or missed payments to credit reference agencies – although it is working to come to an arrangement with them at the moment – meaning your score won’t be affected when other lenders look into your payment history.”

“That’s not actually a good thing.“Using, then repaying, small balances on a credit card is one of the best ways to build up a credit score there is. Using Klarna instead of a credit card cuts you off from this possibility. And if you’re worried about your ability to repay, or forgetfulness will see you miss payments on a credit card, why would Klarna be any different?”

“It’s still debt that needs to be repaid, and while the penalties are less with Klarna than with the fees and credit score downgrades that come with a traditional card, if you default for long enough on the app Klarna still passes your details on to debt collection agency. There’s one more risk on top of the others, too. While Klarna isn’t reporting things to credit reference agencies, the payments are still appearing on your bank statements.”

“Increasingly, firms are using either open banking or even just asking to see a few months’ worth of past statements when making decisions to lend – especially in the case of mortgages. A Klarna habit is perfectly visible to them, and it’s far from clear how they will react to it.”

“There are some positives in the new offering, price drop notification on wishlist items could save shoppers some serious money. The ability to hold shopping lists in one place is also a plus, and spending with Klarna is definitely cheaper than going overdrawn.”

“Klarna’s size also means it could well be able to negotiate deals on discounts with high street and online favourites that other retailers and shopping sites can’t match. But, for all that, its claims of being able to replace a credit card simply don’t hold water.”