Klarna has backed the use of buy-now pay-later (BNPL) as a means of payment for essentials like groceries after debt charities and the regulator warned over the promotion of the products amidst a cost of living crunch this year.
The Financial Conduct Authority (FCA) issued a warning to BNPL providers last week over the promotion of the products as a means of payment as costs soar, reminding firms of their duty to provide “fair and prominent warnings of any risks to customers” and the fact they are taking on debt.
But Klarna, which allows shoppers to spread the cost of payments across instalments, has said that its product offer a safer alternative for managing the cost of essentials than credit cards.
“For years people have been shopping for their groceries and other essentials on their credit card, but they’ve been stung with nasty fees and sky high interest rates – people are realising that BNPL products like ours offer a better value alternative, with no interest and no fees,” a spokesperson for Klarna told media.
“Our products are built to stop people getting into long term unmanageable debt; we restrict the use of our services after missed payments to stop people from racking up debt, we only loan a small amount and gradually increase it if our products are being used responsibly, and we make a new lending decision each time someone wants to use Klarna.”
Concerns have grown from some quarters over the usage of the products as soaring fuel costs and rising prices squeeze customers’ spending power this year.
A survey from Hargreaves Lansdown in May found that nearly one in ten had used the products to cover essentials. Some firms like Zilch, which is regulated by the FCA, also offer the ability to spread the payment of bills across instalments.
Debt charity Step Change echoed the warnings of the regulator over the promotion of the products yesterday, saying it is “vital that financially vulnerable consumers are protected from falling into problem debt due to a lack of transparency around the credit product they are signing up to.”
Speaking about the news, Sue Anderson, Head of Media at StepChange , said:“Our research has suggested that there is significant crossover between use of BNPL and financial difficulty, and very often consumers do not even realise they are taking on credit when using BNPL products,”
“Transparency in advertising is especially important as BNPL is currently unregulated, and at present many providers do not carry out affordability checks, and there are no protections to prevent people from taking out multiple BNPL loans at once.”