{"id":4482,"date":"2018-11-17T09:28:01","date_gmt":"2018-11-17T09:28:01","guid":{"rendered":"http:\/\/www.styledeals.co.uk\/blog\/klarna-the-1bn-high-street-giant-you-might-not-know\/"},"modified":"2018-11-17T09:28:01","modified_gmt":"2018-11-17T09:28:01","slug":"klarna-the-1bn-high-street-giant-you-might-not-know","status":"publish","type":"post","link":"https:\/\/www.styledeals.co.uk\/blog\/klarna-the-1bn-high-street-giant-you-might-not-know\/","title":{"rendered":"Klarna: The \u00a31bn High Street giant you might not know"},"content":{"rendered":"\n
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\"Klarna\"Image copyright<\/span>
\n Klarna<\/span><\/p>\n

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You may never have heard of Klarna.<\/p>\n

But after doing deals with the like of Asos, JD Sports and Topshop in the last 12 months, it’s up there with the biggest names in the High Street.<\/p>\n

Last month it was reported<\/a> that fashion retailer H&M spent $20m (\u00a315.5m) buying slightly less than a 1% stake in the Swedish bank, making Klarna a unicorn: a private technology company valued at more than $1bn.<\/p>\n

However, since it started trading in the UK in 2015, concerns have been raised about the easy access credit it offers shoppers at the checkout.<\/p>\n

With many users in their teens or early 20s, critics are worried the firm encourages young shoppers to buy things they either don’t really want or need – or ultimately can’t afford.<\/p>\n

So how does it work?<\/p>\n

Klarna claims to offer online shoppers the ultimate “try before you buy” experience.<\/p>\n

If you want to try on \u00a3200 of shoes or clothing, it offers you a way of having the goods delivered to you in one go and not having to pay anything upfront.<\/p>\n

Instead, the shop or retailer gets paid by Klarna, which in turn takes on the debt. <\/p>\n

Shoppers buying through Klarna get up to 30 days to make up their mind about what they want to keep and Klarna gets a percentage of the purchase from the retailer.<\/p>\n

So long as the shopper sends back anything they don’t want before 14 or 30 days have lapsed – depending on the retailer – then he or she simply pays for the purchases that are kept and there is no further charge or interest, and no fee.<\/p>\n

However, there are concerns about giving people such easy access to credit at the checkout.<\/p>\n

Critics say this type of payment service could encourage consumers, especially younger ones, to take on dangerous levels of debt.<\/p>\n

After the initial 30-day period, shoppers have an extra 120 days to pay their bill, after which it can then be passed to a debt collection agency.<\/p>\n

That’s when a person can face increased charges and debts, which can ultimately affect his or her credit rating.<\/p>\n

‘Soft’ credit check <\/h2>\n

Klarna also only carries out what it calls a “soft” credit check for people wanting to use its service. <\/p>\n

It asks for personal details, such as an email address, postcode and date of birth.<\/p>\n

It then checks if the shopper’s had any repayment problems with either itself or other retailers and, if not, instant credit is likely to be approved.<\/p>\n

In the UK, about 70% to 80% of applicants – mainly people in their teens and 20s – are accepted and so far this year more than one million people have used Klarna’s “pay later” service.<\/p>\n

Jane Tully, director of external affairs at the Money Advice Trust – the charity that runs National Debtline – said that, while “buy now, pay later credit” offers some shoppers flexibility it can also cause financial problems.<\/p>\n

“This can be an expensive way to borrow if the customer is unable to pay and if they exceed any interest-free time limit as charges can soon mount up,” she said.<\/p>\n

“For all customers, and particularly younger consumers, the check-out should never be a place for the hard-sell when it comes to credit.”<\/p>\n

‘A good history’<\/h2>\n

Luke Griffiths, the UK managing director of Klarna, said his company’s business model was different from traditional credit services, such as credit cards.<\/p>\n

He said the firm has global ambitions.<\/p>\n

“Our ‘pay later’ solution does not charge the consumer any interest, any fees, or anything associated with not paying on time.<\/p>\n

“We encourage them to pay on time but if they’re unable to pay at 30 days we do not charge them beyond that point.” <\/p>\n

He added: “So, as opposed to a credit card, if you go over a period when you were intended to repay and you start incurring charges and interest this service is different because we’re working with the customer.”<\/p>\n

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Image caption<\/span>
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\n Klarna’s UK managing director, Luke Griffiths, says Klarna has global ambitions
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He also denied it encourages problem debt for people in their teens and 20s.<\/p>\n

“Should they have any difficulty with repaying we’re providing flexibility about the way they ultimately return that repayment to Klarna.<\/p>\n

“Should they have any issues with repaying they won’t be able to use our service in the future as well. <\/p>\n

“So we’re not going back to customers who’ve been struggling to repay and encouraging them to use us again.<\/p>\n

“We’re basing the access to our service on a good history of paying for our service and being able to repay.”<\/p>\n

You can hear more on BBC Radio 4’s Money Box programme on Saturday at 12:00 BST or listen again <\/i>here<\/a>.<\/i><\/p>\n

Follow <\/i>Money Box<\/a> and <\/i>Dan<\/a> on twitter.<\/i><\/p>\n<\/p><\/div>\n