Credit, collections & insolvency news
New data from Klarna has highlighted new data that suggests that interest-free Buy Now Pay Later (BNPL) offers consumers better outcomes when compared to traditional credit methods, with 95% of BNPL purchases being paid off early or on time.
The research also found that in contrast, 50% of credit card users miss monthly payments and incur interest. UK outstanding credit card debt increased by 9.2% in 2023, reaching an all-time high of almost £70 billion. With credit card interest rates at their highest in twenty seven years, consumers are paying more interest on higher debts.
Klarna has launched a new initiative called Wikipink with data revealing that 95% of Klarna’s interest-free BNPL purchasers were paid early or on time in 2023. In contrast, recent data from UK Finance reveals that in the twelve months to December, 50% of outstanding balances on a credit card incurred interest as credit card users failed to make their monthly repayments. Menwhile 60% of Klarna’s BNPL purchases were paid early, ahead of their due date, with 35% paid on the due date and just 5% were late.
Internally at Klarna, money earned from late fees is referred to as ‘negative revenue’ however they do act as an encouragement for customers to pay on time or early. Since launching late fees in the UK in March 2023, Klarna has seen a noticeable drop in missed payments. Before implementing late fees, 12.55% of Pay Later transactions were late in Q4 2022. This rate dropped by 55% to 5.6% in Q3 2023. In 2023, 5.18% of BNPL transactions incurred a late fee.
After sending a number of reminders over a four month period, if payments still remain unpaid Klarna will pass debts over to an FCA-registered Debt Collection Agency. In Q1 2021, 1.9% of Pay in 3 orders were referred to a debt collection agency, in Q2 2023 this improved 58% to 0.8% of orders. In 2023, just 0.61% of UK Klarna transactions were referred to a FCA-approved debt collection agency.
Raji Behal, Head of Western and Southern Europe at Klarna said “As traditional banks and credit card companies trick consumers into debt with exorbitant interest rates, hidden fees, and revolving debt, it is clear that the business model does not work in their favour. Wikipink is not just a showcase of Klarna’s achievements, but a call to action for the entire financial industry to prioritize consumer well-being over profit. By sharing our data and practices openly, we aim to inspire a shift towards more ethical, transparent, and consumer-friendly credit options.”