Buy-now-pay-later better than credit cards, says Klarna

Klarna boss Sebastian Siemiatkowski has said that the company’s buy-now-pay-later model is more cost-effective for consumers and helps stop people getting into debt.

Siemiatkowski claims that consumers are better off as Klarna does not charge users interest or fees for late payment.

He also pointed out that Klarna issues credit on a case-by-case basis, unlike credit cards which offer large borrowing limits from the outset.

However, campaigners argue that buy-now-pay-later services make it too easy for people to slip into financial difficulties without realising.

A coalition of money, legal, and consumer groups called for greater regulation of such services, warning that they can be a "slippery slope into debt".

Christopher Woolard, former interim boss at the Financial Conduct Authority (FCA) conducted a review into the buy-now-pay-later market and found that usage during the Covid pandemic had increased fourfold to £2.7bn in 2020.

Siemiatkowski said that if customers show responsible use of the credit given to them "then slowly we increase the availability of it".

"In Britain, we have more credit cards than there are people...[Klarna's] solution is a better solution for people because it is free of interest, it doesn't have additional late fees, it is not trying to make money that way and so it is better for the consumer using this," he told the BBC.

"It is also important to understand that our underwriting looks very different. [With] a credit card you get a limit for £1,000 - you can go out a spend it and unfortunately get in the full depth of it if you use all of it,” he added.

The Woolard Review said that it is “a matter of urgency” for buy-now-pay-later services to be regulated.

"The emergence and expansion of unregulated buy-now-pay-later products gives consumers a significant alternative to more expensive credit, but this also comes with significant potential for consumer harm,” said Mr Woolard.

"For example, more than one in ten customers of a major bank using buy-now-pay-later were already in arrears. Regulation would protect people who use buy-now-pay-later products and make the market sustainable."

Klarna welcomes regulation according to Mr Siemiatkowski: "We want to have regulation to avoid penalising people unnecessarily in that we want to have a full understanding of their financial position.”

However, he added: "We've got to be very very careful not to put regulation in place that actually will benefit the incumbents that are making billions in interest from UK consumers."