Following this announcement, amid the overall growing scrutiny that takes place over the practices of credit providers, and the increasing credit card debt that is present in the region of the UK, Klarna aimed to release comprehensive data focused on repayment rates, debt collection, as well as defaults and consumer age demographics.
UK’s overall credit card debt has increased by 9.2% in 2023, which represented an all-time high of almost GBP 70 billion, according to the official press release. As credit card rates are at their highest in 27 years, clients and users are paying more interest on higher debts.
With this in mind, Klarna aims to continue to encourage responsible spending with a check on every purchase provided by its BNPL solutions, while also delivering clear repayment dates and restricted leveraging to its credit products if any transactions are missed.
At the same time, Wikipink revealed that Klarna customers were significantly more likely to pay early or on time, compared to credit card users. It also showed that 95% of the company’s interest-free BNPL purchases were paid on time or earlier in 2023, and in contrast, data from UK Finance revealed that 50% of balances on credit cards incurred interest as clients failed to make their monthly repayments.
Furthermore, late fees were shown to be necessary to encourage on-time payments. Since launching late fees, Klarna saw noticeable drops in missed payments, from 55% to 5.6% in Q3 2023, as 5.18% of Buy Now, Pay Later (BNPL) transactions incurred a late fee during the year. Klarna may also add a late fee of up to GBP 5 if the payments are overdue by 7 days, which is set to ensure that they don’t exceed 25% of the total order value, with a maximum of two fees per order.
The transactions referred to debt collection also dropped by 58%, as the company decided to pass unpaid debts over to an FCA-registered Debt Collection Agency, only after sending a number of reminders over a four-month period. In 2023, just 0.61% of UK Klarna payments were referred to an FCA-approved debt collection agency, as the process improved by 58% to 0.8% of orders in Q2 2023.
In addition, Wikipink also revealed that UK default rates are significantly optimised, as Klarna’s credit losses in the region were never lower at 0.4% for FY23. This means that 99.6% of lending is paid back securely and on time.
According to the press release, Klarna will continue to update Wikipink in the following months, as well as focus on meeting the needs, preferences, and demands of customers in an ever-evolving market.
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