Credit company Klarna - famous for its Buy Now, Pay Later (BNPL) service - is to introduce a “pay now” option to allow customers to pay for purchases immediately, in full, ahead of an expected crackdown from the UK Treasury on the BNPL market. The move comes as part of a series of changes Klarna is making to “drive up standards” in the sector.
What is buy now, pay later?
The Buy Now, Pay Later industry is a rapidly growing market that offers customers the opportunity to delay or spread the cost of purchases across multiple instalments, without being charged fees or interest. Providers typically make money by taking a small percentage of the transaction cost in exchange for providing the service.
Klarna is one of a number of popular BNPL services available in the UK - including Clearpay, Laybuy, and PayPal - as well as new additions from Monzo Flex and Mastercard. BNPL services have surged in popularity in recent years, and were used by five million people in the UK in 2020 alone.
However, BNPL services have come under fire for encouraging customers to buy more than they can actually afford, and a review by the Financial Conduct Authority found that 1 in 10 people who used BNPL in 2020 already had debt arrears elsewhere.
What changes is Klarna making to its services?
In addition to its plans to launch a “pay now” function, Klarna has also committed to a number of other changes to improve the way it operates and communicates with customers.
The firm has stated that it will introduce new wording to make it “absolutely clear” to customers that they are being offered credit and that there may be implications for their credit score if they miss payments. It has also committed to “stronger credit checks” when determining the creditworthiness of shoppers opting for its popular ‘Pay in 3 instalments’ and ‘Pay in 30 days’ payment options.
Klarna has also said that it will allow customers to share income and spending information from their bank accounts to prove they can afford the repayments and has removed its £12 late fee for missed repayments on its longer-term repayment plans of six months and over.
What are your rights if you use Klarna?
Before using Klarna to make a purchase - or any other BNPL service - it is crucial that you understand your consumer rights in the event that something goes wrong with your transaction.
We discuss consumer rights in regard to BNPL in more detail in our Buy Now, Pay Later guide, but in short, most goods bought through a BNPL service are not covered by Section 75 of the Consumer Credit Act. This is because you are effectively making a purchase through a third party. Klarna does have its own Buyer Protection Policy, but it is not enshrined in UK law and is therefore subject to change.
For more details on consumer rights in the UK marketplace, head over to our article "Section 75 of the Consumer Credit Act explained - your rights and how to claim".
Further reading on Klarna
You can read our full independent Klarna review for more information on its payment options, security credentials, and how it may affect your credit score. Alternatively, you can check out our review of Monzo Flex - a new addition to the BNPL market - or read our Buy Now, Pay Later guide.