The rise of Klarna: buy now pay later

Shopping. Who doesn't like it? Everyone likes to splurge every now and then and treat themselves.

With so many retailers out there, the demand to buy is higher than ever. 

Even if you don't have the money for that thing you really want, Klarna is there so you can buy it now and pay the money later.

The idea is in the name: buy now pay later. Essentially Klarna enables you to purchase the item and you have 30 days to pay or pay back in three instalments.

Seems simple, right?

Over the past few years, Klarna has grown dramatically with their number of retail partners doubling from 2019 to 2021.

Laura Howard, finance expert at Forbes said: ‘‘Buy Now Pay Later Schemes (BNPL) are digitally integrated with hundreds of fashion and retail brands, and this ready accessibility has meant they've become an increasingly popular way to pay.’’

Klarna is partnered with big name brands such as Asos, H&M, Pretty Little Thing, Adidas and they are partnered with luxury brands such as Bvlgari, Tommy Hilfiger, Ganni and Tory Birch.

Klarna also work with home wear brands, beauty and health and well being stores.

Many find themselves in a position where they are unable to pay them back. 

Debt Buffer surveyed 2000 UK respondents and they found:

41% of BNPL customers are struggling with payments .

29% said they’re increasingly worried about their credit score with the June 1^st changes of credit reporting.

StudentBeans found that 65% of Gen X and 75% of Boomers think BNPL services are dangerous as they encourages young people to spend more than they can afford.

It can be a slippery slope for some.

Mat Megens, CEO and Founder of HypeJar said: “When you have debt, you're not able to save properly - if at all. When we owe money to Buy Now Pay later schemes, it’s harder to allocate disposable income to other longer-term goals, because it goes to paying off debt. These schemes prevent longer term objectives being accomplished, or make them much, much more difficult to achieve.”

Many believe that the younger Gen Z generation need more education on budgeting and BNPL schemes.

Tennant said: ''I tend to think that if I had Klarna at 17 or 18 things would be really different and I think a lot of us would have got into debt because we wouldn't have had that financial education.

''A lot of the terms and conditions are not made clear to users and I know that Klarna are not FCA regulated as a body for their 30 day BNPL payments.

''When you're 18 or 19 and wanting a dress to go out, you're not really thinking long term, it's not on your mind.

''If people knew the repercussions they would be better off.''

Recently the company announced that they will be sharing their consumer data of who pays on time with credit companies. 

This means that those who don't pay on time your ability to borrow for much more important purposes, such as paying monthly on your car insurance or getting a mortgage to buy a house, could be jeopardised.

Tennant said that she is wary of using Klarna in the future given the recent news.

She said: "I think it will stop me from using it as regularly.''

The brands Klarna work with lean towards fast fashion and heavy on consumerism.

Megens added: “BNPL marketing is all about instant gratification. We get that instant dopamine hit from using BNPL to buy the thing we want now, but then the debt hangover always follows.''

Nowadays we are surrounded by advertisements and deals to entice us to shop.

Laura Howard added: “In 2022, all of us – but perhaps Gen-Z and millennials in particular – are bombarded with ‘always-on’ marketing messages from every conceivable medium. But the bottom line is, if you need to take out credit for non-essential purchases, you’re best off without them.''