Klarna: ‘buy now, pay later’ firm launches physical card to compete with credit cards- but is it safe to use?

The company has announced the ‘Klarna Card’, a Visa card users may use both online and in many stores, allowing them to delay payments on their purchases. This marks the first time Klarna may be used for purchases in-store.

The card allows consumers to delay payments for up to 30 days, without incurring fees or interest. Klarna has reported there is waitlist of 400,000 for the ‘Klarna Card’ in the UK.

‘Klarna Card’ is already being used in Sweden and Germany by over 800,000 people (as reported by Klarna).

While the ‘Klarna Card’ is immediately appealing for many consumers - at a time of rising living costs and the threat of a National Insurance hike, the prospect of delaying payments without incurring interest is easy to understand - the question remains, is it wise to utilise this ‘buy now, pay later’ scheme?

And are there any safe-guards in place to ensure consumers won’t get stung signing up for the ‘Klarna Card’?

Is it safe to sign up for the Klarna Card?

The answer to that seems to be yes, provided you exercise caution while using it and recognise - at the risk of sounded patronising - that you will have to pay back the money borrowed from Klarna in relatively short order.

In terms of safe-guards from the company itself, Klarna has advised that consumers will have to go through credit checks to be eligible for the card.

Based upon personal financial circumstances, consumers will have a personalised cap placed on their spending. This will be automatically adjusted after each purchase, based on their financial track record. This cap is likely to be in the hundreds for most users, rather than the thousands.

Alex Marsh, Head of Klarna UK, says: “Consumers are rejecting credit products which charge double-digit interest rates while allowing repayments to be put off indefinitely.

For online purchases where credit makes sense, buy now pay later has become the sustainable alternative with no interest and clear payment schedules. The launch of Klarna Card in the UK brings those benefits to the offline world, giving consumers the control and transparency of BNPL for all of their instore purchases.”

Klarna provides a budgeting tool in their app, as well as a spending limit, monitor behaviours like late-night spending.

The company restricts the use of it’s services after missed payments, to prevent debt accumulation. and conducts strict checks every time someone makes a purchase so they only lend to those who can repay.

What do I need to look out for?

However, the notion of ‘buy now, pay later’ has alarm bells ringing for some - consumer body Which?, for example, has previously warned that stronger safeguards are needed for UK shoppers, many of whom do not recognise that delaying payments is actually taking on debt.

And while Klarna has stated it only relies upon debt collection as a ‘last resort’, consumers should not sign up for the ‘Klarna Card’ without acquainting themselves of the Klarna debt collection policy.

While Klarna does not charge interest on purchases, there are potentially serious consequences for missing payments.

Per their website: “If you do not pay for your order on time by the due date, you shall no longer be able to access Klarna’s payment options for future purchases.

For purchases where payments are frequently missed, Klarna may use debt collection agencies to recover your outstanding balance.

Additionally, for our Financing payment options Klarna reports missed and late payments to credit reference agencies which may negatively impact your ability to obtain credit in the future.” (emphasis added).

It is also worth being aware that the ‘Klarna Card’ is a frictionless purchase process - one that calls no attention to the idea that you are spending ‘real money.’ For some people, this encourages reckless expenditure and going over budget - it is worth considering if this is likely for you.

So - is the ‘Klarna Card’ for me?

You should be fine to use the Klarna Card if:

You are organised, and can genuinely afford to pay back, a buy-now-pay-later scheme like the ‘Klarna card’ will incur no interest and is an easier way to manage cash flow than using a standard credit card or payday loan.

This can be useful if you are self-employed. It is also good for spreading the cost of more expensive items over time, and for making purchases for a one-off event such as a wedding.

Be weary of the ‘Klarna Card’ if:

You get towards payday and are cash-poor.

Many people reach month end- and realise they have over extended themselves and cannot afford what they purchased using buy-now-pay-later. This can potentially damage your credit rating, or push a consumer into a debt spiral.

‘Klarna Card’ features in full:

• Visa physical credit card in either black or pink
• Fast and easy payments via Apple Pay or Google Pay
• Simple, smooth sign-up process.
• No foreign exchange fee/markup
• Pay up to 30 days
• In-store contactless payment
• Instant push notifications for all transactions, even if a payment is declined
• Overview of all purchases in the app
• Extend the due date for up to 10 days for free
• Short-term card blocking quickly and easily via the app
• Customer service is available 24/7 in the app