According to an article in City A. M.

, Swedish payments firm Klarna will start charging UK borrowers a 5 pound late fee for missed buy now, pay later (BNPL) payments. Klarna recently posted a “full-year operating loss of 10. 5 billion crowns ($1 billion) against 6.

6 billion crowns in 2021, according to CNBC. Though Alex Marsh, Head of Klarna UK told City A. M.

that this move is happening because “having no fees is not in the best interest of our customers. ” With high levels of inflation in the UK, and a cost-of-living crisis, consumers are relying on BNPL as an alternative to credit. But BNPL payments are typically interest free, so the incentive to pay on time is low.

According to Ben Danner, Senior Analyst of Credit and Commercial at Javelin Strategy & Research, “late fees are not new to the BNPL industry, however, Klarna’s move towards fees in the UK does create friction with BNPL marketing strategies, which have been largely promoting the products as an interest free alternative to credit cards. ” Even if they don’t charge traditional interest on the loans, companies that offer BNPL services typically make money in other ways. These sources of income are often invisible to the consumer.

First, BNPL companies make money through merchant fees. When a customer chooses to use BNPL at a retail store or e-commerce site, a BNPL company, like Klarna, charges the merchant a fee for processing the transaction. This fee can range from 3% to 8% of the total purchase price, depending on the BNPL provider and the merchant’s agreement.

Second, some companies may offer additional services, such as credit monitoring or identity theft protection, for which they charge a fee. Finally, some companies may also make money by selling customer data to third parties, such as advertisers or credit agencies, which can use the data to target marketing campaigns or evaluate creditworthiness. When it comes to selling BNPL services to retail stores and e-commerce companies, BNPL providers typically tout the benefits of their services as a way to increase sales and customer loyalty.

By offering customers the option to pay in installments, providers can help merchants attract customers who might not otherwise be able to afford their products. Additionally, BNPL providers often market themselves as a way to reduce shopping cart abandonment rates, since customers may be more likely to complete a purchase if they have the option to spread out their payments over time. To incentivize merchants to offer BNPL, providers may offer lower merchant fees or other benefits.

By Josh Einis
Mar 01, 2023 00:00
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