The Swedish economy is under pressure, inflation is high and the recession is expected to continue and deepen. Households are grappling with high interest costs and the Swedish krona is weakening.

Unfortunately, the household indebtedness trend is also going in the wrong direction. Figures for the first half of 2023 show that more and more unpaid bills are being sent to the Kronofogden. More people simply owe more, and the total amount of debt is now at an all-time high. 

During the first half of this year, the Kronofogden has received over 609,000 claims for unpaid debts, so-called applications for payment orders. This can be compared with approximately 545,000 during the same period last year – an increase of just over 12 percent. The number of people affected has increased by about six percent to about 268,000. A driving factor for this is simply that more consumers owe more in debt than ever before. The average amount of debt for an individual consumer has increased from SEK 153,000 in 2010, to well over SEK 257,600 today.

This is a development that is unsustainable.

The increasing indebtedness issue in Sweden has been a core issue for us at Klarna during the past years, and we’ve been taking measures to drive change towards a more sustainable and consumer-friendly credit market. An important starting point for this long-term work was the four extensive product changes that we launched in September 2021, where we:

• Removed unnecessary fees
• Introduced more friendly reminders to support timely payments
• Doubled the payment period for invoice purchases 
• Removed credits without an end date, so-called revolving credit

These reforms were transformative. Among other things, the product changes led to Nordic consumers saving over 100 million dollars in the first year alone, and we also halved the proportion of delayed invoice payments on a Nordic level.

Given Klarna's engagement in the Swedish credit market, we welcome the over-indebtedness report recently presented by the Swedish government. We believe that many of the proposed measures can bring about better conditions for Swedish consumers by creating a fairer credit market. And it is important that we deal once and for all with the urgent issues of risky lending and over-indebtedness. In Klarna’s response to this report, we shared our views on the drivers behind pervasive indebtedness as well as our suggestions on some of the ways forward in line with the report’s recommendations: 

The blanco loan bubble is growing! 
The negative trend behind the increasing indebtedness is largely due to the Blanco Loans ("money in the account"). Unsecured forms of interest-bearing credit with long amortization periods. According to the Financial Supervisory Authority (SFSA), the average Blanco Loan is just over SEK 110,000 and one in four Blanco Loans is greater than SEK 150,000. In 2010, a consumer could borrow SEK 250,000 for three to four years, today consumers can get unsecured loans for millions of SEK with an amortization period of 20 years. These loans are ridden with hidden fees and charges and the full extent of this cost is often not made clear to consumers when they apply and commit, which has led to many Swedish consumers being stuck in an unsecured “blanco bubble”.

Give consumers fair and transparent financial offers!
Providing consumers with the right information at the right time is fundamental for them to be able to make smart decisions. This is an approach that we naturally apply, which is one of the reasons why our default levels  are so much lower than those of the traditional credit sector. 99% of our consumers globally pay us back. Unfortunately, not all lenders are held to the same standard, but to ensure this we propose results-oriented requirements that force suppliers to think about how they can best ensure that their consumers understand the products they use and receive relevant key information.

Introduce effective interest rates and cost ceilings for fairly priced credit products!
The possibilities for Swedish consumers to borrow quick and large sums of money directly into the account are endless. The goal for many lenders in this context is to over-leverage consumers with large unsustainable debts at high interest rates and long repayment periods.It’s a profitable product, but bad for consumers - that’s why we decided to remove revolving credit back in 2019. It is with this in mind that we fully support the report's recommendation to limit the cost of effective interest to 20 percent plus the reference rate and to extend the debt transfer limit to all forms of credit. Klarna did this a long time ago, we were not waiting for regulation. But by regulating, this will incentivize lenders to price their products fairly - in a way that reflects the actual cost of offering and administering the product.

Implement a national debt register in Sweden!
The introduction of a national debt register has been discussed for many years and is often seen as a potentially useful measure to tackle consumer over-indebtedness. As we have seen in other markets, a registry can contribute to better outcomes for consumers and result in lower debt levels. Klarna supports the introduction of a national debt register and believes that, designed and implemented correctly, it can achieve positive results for Swedish consumers.

In conclusion, we would like to say that we welcome this government investigation - we need to bring about a change in the Swedish credit market in order to come to terms with the increasing indebtedness issue. The recommendations regarding the measures presented in the report can be a good start for a broader reform for Sweden's credit players, which would force all players in the industry to work to the same high standard as Klarna!