The Swedish bank and payments firm, which has been on a major cost cutting and profitability push in the since 2022, will begin charging a GBP 5 fee to customers that miss payments from the March 2023. Fees will be capped at 25% of the order value with no more than two fees per order, Klarna said.
Late fees mark a major shift for the lender that may upset some debt campaigners, who have been sounding the alarm as shoppers turn to the unregulated deferred payment tools in droves amid a squeeze on their spending power. Nearly GBP 1 in every GBP 8 spent online last month was sourced from BNPL providers like Klarna, Clearpay, and Laybuy, according to research by Adobe Analytics.
Company officials said the company was concerned its no-fee approach was encouraging irresponsible spending on the platform, however, as customers grapple with rising prices. Not charging fees feels consumer-friendly, but thet’re worried it drives the wrong behaviour. Their data now shows that a total absence of late fees actually leads to less favourable outcomes for customers: with less reason to pay on time, customers are more likely to miss a payment.
Shoppers will be given a seven-day grace period and a number of nudges before being hit with a fee, Klarna said. The firm already charges late fees across a number of markets and said that penalising tardy shoppers in the Netherlands and Belgium had improved on-time payments by 20%.
A portion of the late fees will be channeled into paying off debts for customers who have landed themselves in deeper arrears. 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 GBP 6 late fee to shoppers.
The move underscores a shift in Klarna’s strategy in 2023 as it scales back its growth plans and pushes towards profitability. In 2022, the firm slashed around ten per cent of its global staff in a bid to drive down costs. Klarna’s credit losses in the UK narrowed to 0.4% in the second quarter of 2022, with global defaults down to 0.8%.
The development comes as regulators prepare to clampdown on the BNPL sector after ministers confirmed it would be brought under the remit of the Financial Conduct Authority later in 2023. Customers will be allowed to then take complaints to the Financial Ombudsman Service. Regulation will also require firms to boost the depth and scale of their affordability checks on customers.
A review of the sector by the interim chief of the FCA Chris Woolard warned of the ‘urgent’ need for regulation two years prior. Delays to formal rules have drawn the ire of both fintech firms and debt bodies.
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