You might be able to ‘pay later with Klarna’ according to their website, but what exactly is it and can it be trusted?
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What is Klarna?
Klarna is a payment processing company that manages payments at online checkouts. Based in Sweden, they’ve been around since 2005, so they’ve been powering transactions for 15 years.
Klarna processes payments for a whole host of familiar high street names, including H&M, ASOS, Topshop and even Halfords, so if you’re a regular online shopper, chances are you’ve used their services.
In 2014, Klarna became the Klarna Group after buying SOFORT, another payments provider. Then, in 2017 the Swedish Financial Authority granted Klarna a banking licence, so they’re also a bona fide bank.
As well as processing payments on behalf of retailers, Klarna also offers a range of alternative payment methods. It’s this side of the business that’s recently pushed Klarna into the limelight. Current payment options include:
- Pay in 3 – allows you to split payments into three equal parts. The first payment is made at the checkout, and two further payments are deducted after 30 and 60 days.
- Pay in 30 days – gives you 30 days grace at the point of purchase. Basically, it means you can try whatever you buy and decide whether you want it before being charged for it. Crucially, there are no interest charges or admin fees.
- Financing – lets you spread the cost of purchases over 6 to 36 months. Fundamentally, this is a credit option, so payments need to be made every month. There’s also an annual interest rate and you’ll be subject to a hard credit check.
Is Klarna safe?
It’s as safe as any other online bank or payments provider. And according to their website, there are a number of safeguards in place to protect sensitive data like credit card details, names and addresses.
Like many other payments processors, Klarna also uses one-time passcodes to ensure payments are made by people who are who they say they are.
Questions about Klarna’s practices were raised on Twitter when a number of people received a marketing email from Klarna despite not knowingly using their services. It led to a number of queries about data protection and fears that consumer data was being sold.
Klarna was quick to apologise. However, they did make the point that if a retailer is using Klarna to process payments, shoppers need to agree to Klarna’s terms and conditions before the transaction takes place. Agreeing to those Ts & Cs subsequently allows Klarna to market their services directly to those shoppers (and serves as a reminder to read the small print).
What are the pros and cons of using Klarna?
In essence, Klarna offers credit by letting shoppers delay payment. But, like many other ‘innovative payment solutions’, there are both pros and cons.
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There’s no doubt that the option to split or delay payments is a benefit. And it genuinely provides a flexible solution if you’re trying to juggle a budget. the Pay in 3 and Pay in 30 days options only require a soft search of your credit history, so they won’t show up to other potential lenders.
Payments can all be managed via Klarna’s app which will notify you when payments are being taken, so it should be easy to stay on top of your spend.
Klarna sometimes offers exclusive discounts with certain retailers, so there’s the potential to get exclusive bargains.
On the other hand, some users have experienced very poor customer service. There are reports of unanswered calls and money being taken out of accounts despite products being returned to stores. Some shoppers have also commented on how slow Klarna is to provide refunds.
It’s also worth bearing in mind that if you do go down the financing route, it comes with all the things associated with buying things on tick. So while an APR of 18.9% is competitive, don’t ignore all of the other possible charges. For example, you could be charged £12 if you fail to make minimum payments and a further £1.49 for every statement you get by post. It might not sound much but it can all add up.
If you’re just looking for ways to spread the cost, then take a look at the NatWest credit card. It’s no frills but will let you transfer an existing balance at no cost. The APR is also just 9.9% and there’s no annual fee.
Should I use Klarna?
Stripping away the slick website and marketing message, Klarna isn’t really offering anything new. Paying by instalments or delaying payment are fundamentally things you can do with an old-fashioned credit card.
The difference is that with Klarna, you get a number of different payment methods neatly gift-boxed together – which could be both convenience and curse.
If you do need credit, it’s worth comparing Klarna with other credit options before you jump in feet first. There are some worthy credit card deals to be hard, including 0% interest, rewards and cashback cards. Just remember to spend wisely.
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