Credit cards

Buy Now Pay Later company Klarna says ‘credit cards pose the real risk’

Friday 07 January 2022 15:51

Buy now, pay later, companies like Klarna should be FCA regulated

Buy Now Pay Later (BNPL) Fintech Klarna has sought to deflect criticism of credit card providers as the government prepares to crack down on BNPL providers, documents released today reveal.

BNPL companies have come under fire in recent months over fears they are burdening unwitting buyers with dangerous debt, and the government has been consulting on how to regulate the sector.

But Klarna’s submission to the consultation, made public today, says traditional credit providers posed a greater threat to consumers.

The documents stated: “The best consumer for Klarna is the one who uses BNPL for a purchase and then pays on time and in full.

“It’s the absolute opposite of credit card providers and revolving credit products, whose most profitable consumers are those who remain in debt.”

He asserted that “there is clearly a greater risk of harm to consumers from credit card spending.”

But which consumer watchdog? issued a warning this week that BNPL’s speed and simplicity at checkouts was contributing to users’ misunderstanding that they were getting into debt.

In-depth interviews with 30 BNPL users revealed that three-quarters described BNPL as a “means of payment” or “money management tool” rather than a form of credit, a user saying, “That only begs a few questions. you therefore do not have the impression of entering into a credit agreement.

The consultation on how to regulate the sector was opened following a review last year by former Financial Conduct Authority (FCA) boss Chris Woolard, who concluded that change was “urgent to protect consumers.

Alex Marsh, director of Klarna UK, told City AM in a statement: “The HMT consultation is a significant step forward in the regulation of BNPL, for which we have long called for stronger safeguards yesterday, as he warned.

“At Klarna, we didn’t wait for regulations; we already operate to the highest standards, including clearly stating at checkout and in our terms and conditions that we offer interest-free credit products as well as initial repayment plans and the consequences of missed payments.

Marsh said the rules were “absolutely necessary” as banks begin to enter the BNPL space, “bringing dirty tricks and double-digit interest rates with them”.