In Klarna’s British Charm Offensive


In late spring, some of Britain’s most powerful politicians met the CEO of Europe’s largest private start-up at a London restaurant. The dinner was attended by Home Secretary Priti Patel, broadcaster Andrew Neil and former Prime Minister Tony Blair, as well as Sebastian Siemiatkowski, CEO of the company Buy Now, Pay Later (BNPL) Klarna, two sources told the New statesman.

The rally, which was paid for by Klarna, served two purposes. This gave Siemiatkowski the opportunity to introduce some of Britain’s most influential people to his growing company, and persuade them that BNPL industry regulatory plans don’t need to be too aggressive. For the government, at the same time, it helped reassure Klarna’s chief executive that, given Deliveroo’s disastrous IPO, London remained the best place for the start-up’s project. $ 46 billion to go public.

The meeting marked the culmination of a fiery charm offensive by the darling of the European fintech sector. In recent months, Klarna has hired Facebook’s UK communications director to lead its public relations operations, an experienced lobbyist as a public policy official and a former senior official at the Financial Conduct Authority (FCA) to run its affairs. public.

Amid a wave of criticism from activists and politicians, Klarna executives fear the company will soon be hit by what they see as overly prescriptive regulation. In January, 70 multi-party MPs issued a letter warning that companies that buy now, pay later could produce “the next Wonga” (the now defunct payday loan company that was known for its interest rates). “A lot of people have [financially] have over-committed using buy now, pay companies later, and we are facing massive layoffs, time off and income cuts, ”Labor MP Stella Creasy said at the time. “So even if you think you can afford it now, you might not be able to do it later. “

The market leader Klarna and her rivals fiercely challenge the idea that their companies pose such a significant risk to consumers as Wonga, which was placed under administration in 2018 following a crackdown on the industry. While Wonga and other payday lenders charged exorbitant interest rates, Klarna’s deferred payment system, which is used for purchases at fashion and furniture sites, among others, does not charge interest. consumers, but charges vendors a fee for using its service.

But MPs, regulators and activists fear BNPL’s providers will not clearly communicate to customers that they are taking out a loan. As the New statesman reported last year, two-fifths of people who use BNPL programs are unaware that missed payments can affect their credit rating, while nearly half of BNPL users have missed a refund.

Klarna said that, unlike some of its competitors, it does not issue late fees and that only one of its products, “finance” (which is regulated and generally provides a longer repayment plan), can affect a customer’s credit rating. He also stated that he makes it clear to the checkout that his Pay Later products are credit products.

Despite this, the company has been accused of irresponsible messaging. Last December, the Advertising Standards Authority forced Klarna to remove four ads that had been promoted by Instagram influencers during the lockdown. The regulator found that “against the backdrop of the difficult circumstances caused by the foreclosure at the time, including the impacts on people’s financial and mental health, the ads irresponsibly encouraged the use of credit to improve mood. people “.

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Some reviewers have also raised concerns that Klarna is standardizing the use of credit for payments that could be paid instantly. As the Financial Time reported, this allows consumers to spread the cost of items costing only a few pounds over several months. And while some BNPL companies, including Klarna, do credit checks, it has been claimed that they do so to minimize their own risk, rather than to assess affordability. (Klarna disputes this, noting that unlike credit card companies, customers have no incentive to defer repayments because it doesn’t charge them interest.)

Just weeks after MPs released their letter, the government released the Woolard Review – a report on buy now, pay lenders later that called for the industry to come within the scope of the FCA. The report found that BNPL companies have the “potential to create high levels of debt,” especially when used together. “If I’m at my limit with Klarna, I’ll see if the store has another type,” one user told the reviewers. Some BNPL suppliers had told retailers that they could increase their sales by up to 30 percent.

“The review highlights the rapid growth of BNPL as a form of unsecured credit and exposes the considerable potential for harm to consumers using BNPL,” wrote FCA President Charles Rendell in a letter to the Treasury . “He therefore concludes that BNPL must be brought under control. The FCA Board of Directors agrees with the analysis of BNPL’s review and agrees that there are strong and urgent arguments in favor of regulating BNPL’s activities. “

Five months later, the FCA released its roadmap for regulation. “Subject to the Treasury consultation on the scope of the scheme, we plan to consult on the new rules in 2022,” he said. “Our goal is to increase the availability of legal alternatives to high cost credit by educating consumers and removing barriers to access. We want to make sure that businesses properly assess consumers to make sure they can repay their loans. We also want to make sure that businesses treat consumers who are in arrears fairly when collecting their debts. “

Klarna has publicly called for new regulations and claims to have set the highest standards for the industry. But sources said its executives were concerned about the prospect of an overzealous regulatory response.

In a statement, Alex Marsh, CEO of Klarna in the UK, told the New statesman: “We welcome proportionate regulation that benefits consumers and increases choice, mobility and innovation. Our business model is based on people paying us back because we don’t charge consumers any fees or interest. We therefore offer an alternative to high risk, high interest credit cards that encourage debt. We have actively called for industry regulation buy now, pay later to improve standards, and look forward to working with FCA, government and industry at large to create a modern regulatory framework that delivers value. for consumers.

But in late May, around the same time as dinner, Klarna’s Siemiatkowski hinted that London would be a more attractive location for the company’s IPO if the government used Brexit to pursue less rigid regulation. In an interview with the Financial Times, it highlighted rules concerning KYC controls, anti-money laundering and confidentiality. “These kinds of opportunities are now available in the UK: to review regulations and look at those that are too prescriptive.”

Siemiatkowski said Klarna had “a responsibility to guide consumers to the right choice”, but “there must be an end to our responsibility”. “If people want to ban buying more than four sweaters a year online, then fine… [but] there is a limit to what we can do.

Joakim Dal, partner of GP Bullhound, one of Klarna’s investors, said it is common for companies to select an SEO destination based on how popular they are in a market. “[That includes the] Perception of the business among consumers, Perception of the business among investors and traders and also among regulators, politicians and other competitors in the space.

For activists, however, the location of Klarna’s IPO will be of little concern. Their priority is to prevent BNPL users from systematically running into significant debt without understanding the consequences. Klarna, her detractors and her competitors will be watching FCA’s next steps closely.

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