Klarna, arguably the UK’s most famous Buy Now Pay Later (BNPL) company, has announced it will start offering a ‘buy now’ option. This move comes as the BNPL sector is facing ever-increasing criticism.
Could this move indicate the beginning of the end for BNPL? Read on to find out.
[top_pitch]
What is Klarna offering?
Eagle-eyed readers will spot that a ‘buy now’ option is essentially the same as using a debit card to pay for your shopping.
The differences aren’t immediately clear. According to the BNPL company’s press statement, this is what the new offering will entail:
- UK customers will be able to pay immediately and in full wherever Klarna is available.
- It is part of a package of consumer-focused changes to drive up standards across the UK payments industry.
- There will be stronger credit and affordability checks, clearer checkout language, simplified T&Cs, improved complaints handling and removal of last remaining late fees.
[middle_pitch]
What does this mean for BNPL schemes?
There’s no clear answer about what this means for the BNPL industry. What is clear is that the industry is facing mounting pressure to change.
In February, the government announced that the BNPL industry would be regulated by the Financial Conduct Authority – the UK regulator. This move is designed to protect consumers while still allowing them to benefit from the services. However, this could lead to significant changes being made to firms’ offerings so they can comply.
Klarna’s new offering signals a desire to change and adapt to the changing nature of the UK payments industry.
This move is likely to increase its presence in the retail market, particularly with online shopping. But it will also protect the company if BNPL schemes become more heavily regulated or controlled in the future.
Regardless of future legislation (none of us have a crystal ball after all!), if ‘buy now’ becomes the default option, perhaps we will start to see a decline in BNPL.
Given Klarna’s prevalence in the UK BNPL industry, it’s possible some of its competitors will follow suit and launch their own ‘buy now’ offerings.
What are the criticisms of BNPL?
BNPL has faced significant criticism recently.
Its sceptics are concerned that BNPL makes getting credit too easy and that many shoppers don’t understand what they are getting themselves into when they use these services.
Critics also say the consequences of missing payments are not made clear enough. Some argue that BNPL schemes are portrayed as a fun budgeting method rather than as a serious form of credit that can lead to debt collections.
Research appears to support this view too.
A recent study from Citizens Advice revealed a third of shoppers using BNPL missed payments or made them late. A quarter of these individuals ended up in contact with debt collectors.
One in ten users was chased by a debt collector. Of those struggling to pay off BNPL payments, more than half (54%) had to borrow more to pay off their debts.
In the last year, BNPL users were charged a total of £39 million in late fees. This is a significant sum and will have had a big impact on the financial security of affected individuals.
