Klarna launches data hub with facts on how Brits use its credit products

Amid growing scrutiny over the practices of credit providers and increasing credit card debt in the UK, Klarna revealed comprehensive data on repayment rates, debt-collection, defaults and consumer age demographics.

Raji Behal, Head of Western and Southern Europe at Klarna said, “As traditional banks and credit card companies trick consumers into debt with exorbitant interest rates, hidden fees, and revolving debt, it is clear that the business model does not work in their favour. Wikipink is not just a showcase of Klarna's achievements, but a call to action for the entire financial industry to prioritize consumer well-being over profit. By sharing our data and practices openly, we aim to inspire a shift towards more ethical, transparent, and consumer-friendly credit options.”

UK outstanding credit card debt increased by 9.2% in 2023, reaching an all-time high of almost £70 billion. With credit card interest rates at their highest in twenty seven years, consumers are paying more interest on higher debts. Klarna’s BNPL products never charge any interest and encourage responsible spending with checks on every purchase, clear repayment dates and the restricted use to its credit products if payments are missed. All that means on average Klarna customers carry an outstanding balance of £150, compared to £1,295 on a credit card.

The data reveals:

Klarna users significantly more likely to pay early or on-time vs credit card users
Wikipink data reveals 95% of Klarna’s interest-free BNPL purchasers were paid early or on time in 2023. In contrast, recent data from UK Finance reveals in the twelve months to December, 50% of outstanding balances on a credit card incurred interest as credit card users fail to make their monthly repayments. In further contrast, 60% of Klarna’s BNPL purchases were paid early, ahead of their due date, with 35% paid on the due date and just 5% were late.

Late fees are a necessary evil, but encourage on time payments
Internally at Klarna, money earnt from late fees is referred to as “negative revenue”, however they do act as an encouragement for customers to pay on time or early. Since launching late fees in the UK in March 2023, Klarna has seen a noticeable drop in missed payments. Before implementing late fees, 12.55% of Pay Later transactions were late in Q4 2022. This rate dropped by 55% to 5.6% in Q3 2023. In 2023, 5.18% of BNPL transactions incurred a late fee.

Transactions referred to debt collection also drop by 58%
After sending a number of reminders over a four month period, if payments still remain unpaid Klarna will pass debts over to an FCA registered Debt Collection Agency. In Q1 2021, 1.9% of Pay in 3 orders were referred to a debt collection agency, in Q2 2023 this improved 58% to 0.8% of orders. In 2023, just 0.61% of UK Klarna transactions were referred to a FCA approved debt collection agency.

UK default rates are significantly better than credit cards
Klarna’s credit losses in the UK have never been lower at 0.4% for FY23 meaning 99.6% of lending is paid back. Meanwhile traditional banks set aside provisions for a rise in customer defaults.

Everybody loves Klarna
The average age of a customer in the UK is 36, and continues to trend upwards as consumers of all generations realise the benefits of BNPL. One third of customers (33%) are 26-35, almost a quarter (23%) between 36 and 45, less than a fifth (19%) are 18-25 with a quarter (24%) are 46+. Klarna’s Trustpilot score stands at 4.0, while the likes of Barclays, HSBC, American Express peak at 1.6.

Klarna complaint rates are MUCH lower than banks’
Complaints per 1,000 accounts on Klarna stand at 0.99 far below the lowest of the big banks, Lloyds at 2.31.

While traditional banks are forced to reveal complaint rates and defaults, Klarna is volunteering more granular data to ensure accurate discussion of the sector. Klarna will continue to update Wikipink in the coming months.