Exclusive: Klarna rolls out UK late fees and ‘customer recovery programme’ in bid to curb defaults
Buy-now pay-later giant Klarna will begin penalising customers for late payments in the UK next month in a bid to curb loan defaults, as shoppers pour onto the platform amid a cost of living squeeze, City A.M. can exclusively reveal.
The Swedish bank and payments firm, which has been on a major cost cutting and profitability push in the past 12 months, will begin charging a £5 fee to customers that miss payments from the 16th March. Fees will be capped at 25 per cent of the order value with no more than two fees per order, Klarna said.
Late fees mark a major shift for the lender that may unsettle some debt campaigners, who have been sounding the alarm as shoppers turn to the unregulated deferred payment tools in droves amid a squeeze on their spending power. Nearly £1 in every £8 spent online last month was sourced from BNPL providers like Klarna, Clearpay and Laybuy, according to research by Adobe Analytics.
Writing in Morning Wire today, Klarna’s UK boss Alex Marsh said the firm was concerned its no-fee approach was encouraging irresponsible spending on the platform, however, as customers grapple with rising prices.
“Not charging fees feels consumer-friendly, but we’re worried it drives the wrong behaviour,” he said. “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.”
Shoppers will be given a seven day grace period and a number of nudges before being hit with a fee, Klarna said. The firm already charges late fees across a number of markets and said that penalising tardy shoppers in the Netherlands and Belgium had improved on-time payments by 20 per cent.
“We’ve concluded that having no fees is not in the best interest of our customers, but we don’t want to rely on fees or charge extortionate amounts like traditional banks who monetise the misery of customers who fall behind,” Marsh added.
A portion of the late fees will be channeled into paying off debts for customers who have landed themselves in deeper arrears, Marsh said. A new “Customer Recovery Programme” from the firm will offer shoppers financial support to pay off debts and “tools to stay on top of payments”.
A number of the major BNPL players already charge late fees in the UK, with both Laybuy and Clearpay charging a £6 late fee to shoppers.
James Daley, managing director of Fairer Finance, which has recommended that Klarna introduce fees previously, welcomed the move and said fees could help prevent unrestrained spending by shoppers.
“Used responsibly, late fees provide an important deterrent as well as a reminder that Buy Now Pay Later is a form of credit and needs to be taken seriously as a loan,” he said.
The move underscores a shift in Klarna’s strategy this year as it scales back its growth plans and pushes towards profitability. The firm last year slashed around ten per cent of its global staff in a bid to drive down costs.
Klarna’s credit losses in the UK narrowed to 0.4 per cent in the second quarter of last year, with global defaults down to 0.8 per cent.
The move comes as regulators prepare to clampdown on the BNPL sector after ministers confirmed the it would be brought under the remit of the Financial Conduct Authority later this year. Customers will be allowed to then take complaints to the Financial Ombudsman Service. Regulation will also require firms to boost the depth and scale of their affordability checks on customers.
A review of the sector by the interim chief of the FCA Chris Woolard warned of the “urgent” need for regulation two years ago. Delays to formal rules have drawn the ire of both fintech firms and debt bodies.