BNPL giant Klarna will reportedly start charging customers for any late payments in the UK, in hopes to curb loan defaults.
The FinTech giant will charge a £5 fee to customers that miss a payment, starting on March 16, according to a report from City A.M. These fees will be capped at 25% of the order value and no more than two fees will be made per order.
Klarna head of UK Alex Marsh said the company felt the no-fee approach was encouraging irresponsible spending.
He said, “Not charging fees feels consumer-friendly, but we’re worried it drives the wrong behaviour. Our 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.”
Before a customer is charged a late fee, they will be given a seven-day grace period and several nudges.
Klarna has fees in place in the Netherlands and Belgium, where it claims to have improved on-time payments by 20%.
Marsh added, “We’ve concluded that having no fees is not in the best interest of our customers, but we don’t want to rely on fees or charge extortionate amounts like traditional banks who monetise the misery of customers who fall behind.”
Klarna will use part of the late fees for its Customer Recovery Programme, which offers financial support to shoppers to pay off debts and stay on top of payments.
As the cost-of-living crisis affects consumers, more Brits are looking to BNPL services to support their spending. A recent report from City A.M. claimed that nearly £1 in every £8 spent online in January was sourced from BNPL providers.
Klarna recently announced that it is experiencing strong growth in the US. It recorded a 71% year-over-year growth in GMV and improved credit loss rates by 37%.
In other BNPL news, a recent report from Creditspring found that complaints to the Financial Ombudsman Service against BNPL firms have risen by 36% over the past three years.
FinTech Global recently spoke to several players in the industry about how they will cope with the cost-of-living crisis. There was a consensus that while they will remain strong during this crisis, they will need to adapt their services slightly.
Carta Worldwide’s Richard Wray said, “The reality is that, on average, BNPL companies lost money in 2021. With soaring borrowing rates and delinquencies continuing to rise it is critical that BNPL providers find new sectors and use cases for their services.”
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