Buy Now, Payer Later (BNPL) firm Klarna is rolling out penalty charges to customers who are late to making payments as it looks to address ‘worrying consumer habits’.
According to City AM, from March 16 onwards, the Swedish platform will charge customers a £5 late fee if they miss a payment or instalment on goods they purchase via Klarna. Fees will be capped at 25% of the total order and will only charge consumers two fees per order.
UK Head of Klarna, Alex Marsh, told City AM that the BNPL giant is introducing penalties to late payments as it looks to address consumer reliance on BNPL during a time when prices are rising in a cost-of-living crisis.
He said: “Not charging fees feels consumer-friendly, but we’re worried it drives the wrong behaviour. Our data now shows that a total absence of late fees actually leads to less favourable outcomes for customers, with less reason to pay on time, customers are more likely to miss a payment.”
“We’ve concluded that having no fees is not in the best interest of our customers, but we don’t want to rely on fees or charge extortionate amounts like traditional banks who monetise the misery of customers who fall behind.”
BNPL spending exploded during the COVID-19 pandemic and has only gone on to increase, with Adobe Analytics recently finding that consumer spending via BNPL rose by 10.7% in the first month of 2023 alone.
Overall, Adobe found that UK customers spent approximately £8bn through BNPL services, which accounted for 12% of all online purchases in January.
Despite Klarna charging zero interest on purchases made via its services and no late payment charges previously, the decision to introduce the penalties allows the company to not appear as if it is promoting irresponsible spending.
Customers will be alerted to the potential £5 late payment charge seven days before a payment is due and will be sent reminders before the fine is ultimately charged.
Klarna confirmed that a portion of late fees will be worked into paying off debts for customers for the ‘Customer Recovery Programme’, where they offer financial support to those in critical debt situations.
