Buy now, pay later giant Klarna has launched an ad campaign asking users to consider whether what they’re buying is essential, despite boasting to retailers that it helps people spend more.
The company, one of Europe’s most successful startups with 8.6 million users in the UK and an estimated valuation of $5.5 billion, has faced criticism from some debt charities amid allegations that it encourages its younger users to spend more than they can afford, driving them to do so. religion.
The Swedish brand, backed by rapper Snoop Dogg among others, launched the ‘KlarnaSense’ initiative this week, encouraging customers to ask themselves: ‘Do I love it? Will I use it? Is it worth it?’ Before using Buy Now, Pay Later.
Klarna has come under increasing scrutiny in the recent past amid concerns that it encourages people to spend money they cannot afford
Alice Tapper, founder of personal finance website Go Fund Yourself who launched a petition calling for more regulation of advertising and messaging in the industry, said the initiative was a start but called for more action.
She said: ‘While I welcome the explicit promotion of responsible spending, it is important that this does not distract from the urgent need to take practical steps to protect consumers.
Klarna and other Buy Now Pay Later providers must take more responsibility for the financial well-being of their customers. Variations of the motto: “Do I like it? Will I use it? Is it worth it?” For a long time, but Klarna ignored the fourth and most important question: “Can I take it?”.
She added: “Glossy television advertising is the beginning, but it’s the information and warnings that are given to consumers at the checkout and in advertising that will, in fact, change.
“It is also not possible for the customer to think three times” when Klarna has already been pre-selected, causing many consumers to use these products by mistake. Getting credit without knowledge should not be possible.
Klarna UK Managing Director Luke Griffiths said: ‘We know it’s sometimes easy to get over excited and get carried away with impulse purchases and that Klarna also plays an important role in helping our customers buy the right things, at the right time. .’
Mr Griffiths told i last week that the company has “always been listening to both feedback from within the industry and actual consumers, and this is reflected in the way we have developed our product”.
But the campaign can be seen as somewhat of an irony given that the company markets itself to partner retailers by showing how users spend more, and more often.
A section of their website aimed at businesses states: “Are you ready to acquire more customers, who buy more and do so more often?”
Klarna’s new “Three Questions” campaign comes despite the fact that its business model relies on convincing stores to convince users to spend more, and often
It prides itself on allowing customers to pay with Klarna’s Pay Later service which results in a “16 percent increase in average order value” and a “20 percent increase in shopper purchase frequency,” while customers who pay in installments spend 55 percent more. percent more.
Another section of its website says 44 percent of users would have given up on their purchase if Klarna wasn’t available, an attractive proposition for retailers struggling with low in-person footfall and dealing with the hyper-competitive world of online shopping.
It says in a section of its website aimed at businesses that the pay later service often drives up customer spending
Klarna offers users three ways to pay for items from over 6,500 partner stores in the UK.
They can pay for something in three monthly instalments, pay for something 30 days after you buy it, or set up a formal financing agreement where they pay in a series of monthly payments over a period of 12 to 36 months.
Although Klarna published results from a survey of 5,000 users that found that 67 percent said Klarna helped them manage money and spread the cost of more expensive purchases, there has been growing concern over the past few years about the company and other buy-now, pay-later services.
Buy now, pay later has been around for years, usually in the form of store and catalog credit, but the likes of Klarna, ClearPay, and Laybuy have introduced it to a whole new generation of shoppers.
Klarna offers three payment methods. Customers can pay for an item a month after purchasing it, split it into three monthly payments, or set up a formal financing agreement
This has led to concerns that the cool advertising and friendly marketing of some of these companies, of which Klarna is by far the most famous, is driving people into debt by encouraging them to shop even if they don’t have the money.
Charitable organization Payplan said nearly three-quarters of its customers were between the ages of 18 and 34 and late payment deals contributed to their debt problems.
Klarna says the ability to split payments into three interest-free installments means that 44% of users who otherwise wouldn’t have bought anything they’ve already spent
In January this year, one-fifth of the 2,000 people surveyed by comparison site CompareMarket said they would spend more than they would normally as a result of using buy-now-pay-later services, and more than half felt it contributed to higher debt levels.
About 56 percent of 18-34-year-olds surveyed by Hastee, which gives people access to early earned wages for a fee, said the schemes encouraged them to spend money they didn’t have.
Over 6,500 UK retailers offer at least one Klarna payment method – including Asos
24-year-old Yasmin Ibrahim told our sister Money Mail in February how she spent £5,000-6,000 after becoming hooked on buy now, pay later services like Klarna.
She said her spending has gone up “extremely” and that it “becomes a vicious cycle. You use it once and then you have to use it next time because the money for the last thing you bought is just out of your account.”
Klarna has a net worth of around $5.5 billion, and one of her backers is rapper Snoop Dogg
Recent research from Market Comparison found that nearly a quarter of 18-24-year-olds have used buy now, pay later services to make purchases since the coronavirus lockdown began in March.
Our research suggests that young people in particular may be turning to alternative credit schemes at a time of increasing economic uncertainty.
However, there are still serious concerns about some people’s ability to keep track of their debts and prevent bills from piling up.
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