Klarna is a new online payment system that is slowly gaining ground in the UK.
I first spotted it on the Topshop website, where Klarna were offering 3 months interest-free credit. As of last autumn, they have partnered in the UK with the Arcadia group behind shops like Dorothy Perkins and Topshop. They also handle payments for other popular UK internet shops, including Schuh.
So who are Klarna?
Their professed aim is to separate the payment process from the shopping process: they let you concentrate on spending money, and take it off you later. They claim that their system improves conversion rates, or the likelihood that someone who looks at an item online will actually buy it. Their argument is that people abandon their online shopping carts because they find it too complicated to fill out all their card details, particularly if they are browsing on mobile devices which has become the bulk of traffic for many sites.
The word Klarna means “to clarify, brighten” in Swedish. The company has been active since 2005, but so far has mainly operated in Scandinavian countries and Germany. About 40% of e-commerce sales in Sweden are processed through Klarna and ASOS Germany uses it. As a result, there is little information available in English about the company, other than a handful of reviews on Facebook.
How does it work?
Klarna offers online shops a complete check-out process. As part of that process, you can pay with your card straightaway, as you would have done in the past.
However, they also offer delayed payment. In most cases, this means a 14-day interest-free period. In theory, this should allow goods to arrive at your address before you have to pay. If you send the items back, this might mean not paying at all, that is, if you are willing to trust that the system will work and you won’t be hit with a late payment fee regardless, and have to sort it all out at their customer service centre.
Finally, they also offer credit if you do not want to or cannot pay for your item after the grace period is over. This, of course, is provided at the high rates we have come to expect from store cards, currently 18.9% APR.
In exchange for my email address, name, address, mobile number and date of birth I was offered 14 days of interest-free credit on a £19.99 pair of shoes from Schuh. There was no apparent verification of these details, and no credit card details are needed.
How is it different from PayPal?
Most payment services providers are just offering an e-commerce technology solution: they are connecting credit card networks with merchants and taking a small fee in the middle. With PayPal, unless your account is in credit, PayPal are just processing a credit card transaction on behalf of the merchant. However, Klarna is replacing the role of the credit card provider and extending credit themselves.
Their decisions are based on their experience of credit and fraud risk, using factors like the type of product, the location of the person ordering, etc. So if you are ordering a 60 inch TV at 3 a.m. from a Nigerian IP address, to be delivered to an industrial park, you are less likely to get offered credit than ordering a copy of Winston Churchill’s collected speeches to be delivered to your upscale Windsor home.
First things first: I would never recommend using credit unless you have to. It makes sense to use credit cards for online shopping, as in the case of fraud the money is not drawn directly from your bank account, but it also makes sense to pay credit card bills off fully every month. We all have unforeseen expenses, but for “luxuries” I prefer to pay when I buy them.
I am not sure I buy Klarna’s argument that having to put in credit card details puts people off online shopping. Sure, you might not want to pull your card out on a bus, but how often do you buy something on public transport? Also, there are plenty of other services – PayPal, Amazon payments, etc., – that already offer quick card payments with a login email address and password.
It might also be easy to miss or forget notifications from Klarna and end up with late fees or interest payments faster than you would if you are using a credit card. Whether this will be the case remains to be seen once we have a better picture of the Klarna customer experience in the UK.
Zsuzsanna hates buying things full-price. That’s why she is Admin and Twitter Queen at JustLooking.com.