On November 21, 2022, the Dutch Financial Conduct Authority (AFM) published a report on the state of the Buy Now Pay Later (BNPL) market in the Netherlands. This follows an investigation the AFM conducted before the summer period to better inform their position on the industry, and to which Klarna has extensively contributed on a voluntary basis. 

At Klarna, our message to people is simple: in most cases, if you can afford something, you should pay for it with money you have. But there are of course times when the use of credit makes sense, and where purchasing with a debit card is not the best solution – for example when shopping online. 

When used properly credit can be extremely beneficial. It can give you extra protection when you’re making an online purchase, or enable you to try before you buy, only paying for what you keep. Credit can also help with your cash flow by buying items in bulk or accessing discounts meaning you save money in the long run, or help manage your money if you’re dealing with an unexpected cost when life happens.

An important alternative
In its report, the AFM recognizes that ‘BNPL is responding to clear consumer needs’ and ‘by being an addition to the existing offer of payment services can be an important alternative to credit cards’. This is because BNPL provides consumers with many benefits beyond just being a lower cost form of credit, such as flexibility, security and unburdening and is not viewed as a necessity – actually financial hardship such as ‘not having enough money on my account’ is the last reason why Dutch consumers turn to BNPL according to an AFM survey. BNPL responds to consumer needs for more sustainable payments and, as the research confirms, is not tied to one specific age group: the use of BNPL is as common for 18-34 years old as for 35-49 years old. 

But, the AFM also remains understandably cautious by identifying the need for strong underwriting procedures, pre-contractual information and collections management to ensure providers are only extending credit to those that can repay. All things that very much align with how we operate at Klarna. 

How Klarna works
Klarna launched in the Netherlands in 2010. We quickly became one of the largest and most loved providers of interest-free BNPL and payment products in the Netherlands thanks to our more than 1 million monthly active app users and over 45 thousand local retailers we partner with. 

Our products are built around choice when it comes to payment and credit. That is because we intentionally built our business to be on the consumers’ side, something which the banks and credit card companies failed to do. Each solution is designed to help consumers save time and money, and worry less about their finances. It's not built around keeping them in debt. 

In addition to our well-known interest-free and short-term Pay Later 30 and our Pay in 3 solution allowing consumers to split their payment in three interest-free equal installments, Klarna also offers a debit solution to pay immediately and in full, which accounts for approximately 40 percent of our overall global volume.

Across all our credit solutions, we conduct robust eligibility checks on each and every purchase to ensure our lending is responsible and people can afford to repay, by using a mix of internal and external data and purchasing history information. This compares to credit cards or overdraft facilities where checks are primarily carried out at the opening of the account. It is essential to our business model as we make our income by charging retailers a service fee for the use of Klarna. This is in direct contrast to most traditional consumer lenders offering credit cards, revolving credit products and payday loans, whose business models rely on consumer fees and interest up to 10% of the outstanding loan, even before a consumer misses a payment.

The average Klarna user in the Netherlands is 36 years old and a responsible user of credit, as justified by the fact that 99% of our global users pay us back. The Klarna consumer’s purchase order in the Netherlands is valued at only €90 at the end of 2021, in sharp contrast to the average consumer loan amount of €9.174 or €2.913 for revolving credit. And it’s paid off within 45 days on average. 

Actually, according to the AFM, a large majority of Dutch BNPL users say to never miss a payment (this is the highest among 65+ years old at 97% and lowest among 35-49 years old at 73%).

At Klarna, we’ve not waited for this report
Klarna has many years’ experience offering payment and credit solutions and we therefore continuously make changes to our products to protect consumers, including:

• Extending Pay Later from 14 to 30 days to ensure that consumers have a full income-cycle between the moment they purchase and have to pay.
• Developing personal finance features to help consumers be in control of their spending and helping them manage their money efficiently.
• Supporting consumers in case there is something wrong with their order thanks to our Buyers’ Protection, a significant advantage to existing payment solutions as highlighted recently by the Consumentenbond. 
• Enforcing strict internal eligibility rules so that only adult consumers can make use of our services and products.
• Making our repayment plans and total costs clear and understandable to consumers in the checkout flow before completing the purchase, providing them with all the pre-contractual information they need to make an informed decision. 
• Making sure consumers receive multiple notifications throughout the repayment period (in-app notification, text message, email) to help them pay on time and restricting the use of our services after a missed payment to avoid them accumulating debt. 
• Developing specific internal rules for vulnerable consumers with suitable solutions in distress situations and only working with debt collection agencies that are affiliated with the Dutch Association of Certified Debt Collection Companies (NVI) and complying with the Collection Costs Act. 
• Making our repayment plans clear and understandable to consumers in the checkout flow. 

Protecting consumers in the Netherlands and across Europe
At Klarna we have always operated within existing rules and regulations, complying with all requirements as a regulated European bank and provider of credit. A truly competitive market is the best way to encourage innovation and in turn drive better consumer choice and outcomes. However, there are still bad products and providers out there, so we are pleased to see that greater oversight of BNPL is now under way. The AFM’s market overview exercise is a positive step in the overall revision process of consumer credit rules across Europe. 

That is why Klarna supports the European Commission’s ambition to reinforce, streamline and modernise consumer credit rules through its review of the Consumer Credit Directive (CCD) to ensure they are futureproof, better protect consumers, and serve to strengthen consumer credit across the European Union. 

Challenging the industry 
Delivering good outcomes by providing better alternatives to the credit offerings of traditional financial institutions, especially high-cost forms of credit is at the heart of what we do at Klarna.  

The AFM’s report is a good reminder when looking at the overall market of small loans providers, including overdraft, payday loans, traditional consumer lending, private lease and not just BNPL, that interest-free short-term credit forms are inherently lower risk than interest-bearing credit products, and that they can be a useful tool for consumers to manage their finances when used appropriately.