Klarna response to Populus survey (on behalf of comparethemarket.com) and Sifted.eu article by Isabel Woodford (8 January 2020). To be attributed to Luke Griffiths, General Manager at Klarna UK

Whilst we cannot comment on the methodology for the research, Klarna have provided the following response which details corrections regarding Klarna’s products and processes.

The ‘Buy Now Pay Later’ category encompasses a wide range of financial products and companies. These range from deferred invoice payments, to traditional store cards and regulated credit offerings. Each of these is unique, with a variety of associated terms and conditions which will have different impacts on a person’s credit score.

Klarna’s ‘Pay later’ products are ‘Pay 30 days later’ and ‘Instalments’ (formerly ‘Pay in 3’) which have no interest or fees, ever. These two products are Klarna UK’s most widely used and are exempt from a regulatory point of view, whereby consumers do not enter into a regulated credit agreement with Klarna.

To use ‘Pay 30 days later’ or ‘Instalments’, a soft credit check is undertaken by Klarna on the customer. This does not leave a record on their credit file that will either impact the customer’s credit score or is visible to other lenders. For a customer’s credit file to be impacted, a lender would have to submit missed payment information to the credit reference agency (CRA). Klarna does not report missed payments to the CRA in relation to these products. It is therefore not accurate to say that “Klarna’s ‘Pay later’ schemes damaging millions of shoppers’ credit scores”. To date, a customer’s credit score has not been impacted by using Klarna’s ‘Pay later’ products even if they have failed to pay on time.

‘Financing’ (formerly known as Slice it) is Klarna’s only regulated credit product, with payment plans typically from 6-36 months. Similar to all traditional finance providers who offer products of this nature, with the customer’s consent a hard credit check is undertaken. In this instance, there will be a record of the search on the customer’s credit file with the CRA. The shopper must proactively complete, be approved for and sign a regulated credit agreement, where they are advised of the implications of non-payment prior to application. If a customer fails to pay on-time for this, the credit reference agencies are informed which may have an impact on their credit score.

Less than 0.5% of Klarna UK customers have had their credit score impacted as a consequence of missing payments.

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About Klarna

Klarna, the leading global disruptor of payments and banking, and provider of smoooth retail services, was founded in Sweden in 2005. Klarna currently holds a post money valuation of $5.5 billion, which ranks Klarna as the largest private fintech in Europe and one of the largest private fintechs globally. Klarna provides merchants with a flexible range of preferred payment alternatives that enable consumers to easily and securely pay when and how they want everywhere — online and in-store.

Over 190,000 merchants, including ASOS, Peloton, Swoon, Michael Kors, Superdry, Gymshark, Samsung, Topshop, Oliver Bonas and many more have enabled Klarna’s innovative shopping experience, that stretches beyond the actual transaction and also allows consumers to take control over their personal finances. Klarna has 2,500 employees and is active in 17 countries.

Klarna: Product information

Pay 30 days later

• The most popular Klarna service, customers have up to 30 days to pay for their goods after the item is shipped, with no interest or fees — ever.
• This means they can return the items if they’re not what they expected, without any money leaving their bank account. It’s ideal for consumers who order online, particularly in fashion and footwear, and frequently order multiple items to try on. Using Klarna prevents them having to part with a large sum of money upfront, so they can try before they buy.
• Klarna’s service enables shoppers to pay for only the items they wish to keep, and prevents waiting for a retailer to process a refund — which can often take up to 14 days.
• To pay 30 days later, a soft credit check is performed on the shopper, and a customer’s previous credit history, age, and other factors are considered. A soft credit check does not affect a customer’s credit score and is not visible to other lenders.
• If a customer does not pay after the agreed 30 days, we reach out to them over a period of several months to ask for repayment (text, email etc). But there will never be a late payment charge, interest or impact on their credit score.

Instalments (formerly ‘Pay in 3’)

• With Klarna, shoppers can split the cost of their purchase into 3 equal monthly instalments, with no interest or fees.
• Payments for this product are scheduled automatically and are managed as follows:
  • The first payment is made at point of purchase via either a debit or credit card
  • 30 days later, the second payment is taken
  • Finally, the third payment is taken on day 60
• Eligibility for this product is determined via a soft credit search and other factors.
• Even if a payment is missed, there will never be a late payment charge, interest or impact on their credit score.

Financing (formerly ‘Slice it’)

• Klarna also offers a traditional regulated credit product, for the purchase of higher-ticket items in payment plans typically of 6-36 months up to values of 25,000 GBP.
• Shoppers have increased purchasing power right when they need it — at the point of sale — and can slice their purchase up into manage-able parts.
• Financing may be offered interest-free or interest-bearing depending on the merchant.
• Financing is dependent on a full credit check, a customer’s previous credit history, an affordability assessment, their age and several other factors, including at what time they placed their order. This credit check can influence a consumer’s credit rating.
• If a customer misses their monthly payments, late payment charges will apply for a maximum of 3 months.
• Whilst customers may be offered a promotional interest-free period they still make monthly payments to pay off the cost of their actual purchase. On this product, Klarna never charges backdated interest to the customer.