Klarna is to begin charging late payment fees to UK customers in a bid to curb loan defaults as more users turn to buy now, pay later services to budget their way through the cost of living crisis.
The Swedish bank and payments firm, which has been on a major cost cutting and profitability push in the past 12 months, will begin charging a £5 fee to customers that miss payments from the 16th March, CityA.M. reports. Fees will be capped at 25 per cent of the order value with no more than two fees per order.
Writing in City A.M., Klarna’s UK boss Alex Marsh said the firm was concerned its no-fee approach was encouraging irresponsible spending on the platform.
“Not charging fees feels consumer-friendly, but we’re worried it drives the wrong behaviour,” he wrote. “Our data now shows that a total absence of late fees actually leads to less favorable outcomes for customers: with less reason to pay on time, customers are more likely to miss a payment.”
Klarna intends to give customers an option of automatic payments and a seven day grace period before charging a fee.
In the Netherlands and Belgium late fees have improved Klarna’s on-time payments by 20%. And, in a YouGov survey, 75% of British customers said they were more likely to pay on time if there was a late fee.
A portion of the late fees will be channeled into paying off debts for customers who have landed themselves in deeper arrears, Marsh said. A new “Customer Recovery Programme” from the firm will offer shoppers financial support to pay off debts and “tools to stay on top of payments”.
A number of the major BNPL players already charge late fees in the UK, with both Laybuy and Clearpay charging a £6 late fee to shoppers.
James Daley, managing director at Fairer Finance, comments: “We are pleased that Klarna has introduced late fees, as we have previously recommended to them. Used responsibly, late fees provide an important deterrent as well as a reminder that Buy Now Pay Later is a form of credit and needs to be taken seriously as a loan. It’s of course important that late fees are fair and reasonable, and don’t become an income stream for credit providers, and it’s encouraging to see that Klarna intends to provide additional support for those who fall behind.”
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