What is Klarna? How buy now, pay later app works, makes money - and why UK shoppers can opt to ‘pay now’

UK customers using the Klarna app now have the option to ‘pay now’.

The global firm has positioned itself as a leading company in the buy now, pay later market, until today (Monday 18 October 2021).

Shoppers can now pay up front for goods bought online or continue to delay payments, amid widespread scrutiny of the buy now, pay later market.

Here’s all you need to know about Klarna, how it makes money and why bosses have brought in the option of paying up front for goods on the UK app.

What is Klarna?

Klarna is a buy now, pay later firm which has seen its popularity soar during the Covd pandemic.

It allows customers to spread the cost of purchased goods over three months or longer, without having to make an initial payment.

The items ordered will be shipped straight away, as usual, but the payment from the retailer won’t be sought until a later date.

This way of shopping allows you to make purchases online and decide if you want to keep them or not before paying for them.

It means shoppers who use Klarna won’t be waiting for their money back on items they decide they don’t want to keep.

How does Klarna work?

Klarna offers an interest free delayed method of payment with no late fees.

Unlike credit cards, Klarna’s interest free period doesn’t have an expiration date and there are no additional charges if you make a late payment.

But if you don’t make the repayments within three months then debts are referred to a collection agency who will seek repayment.

Klarna makes its money through charging retailers a transaction fee each and every time a purchase is made on the retailers website.

In 2020, Klarna processed 20 million transactions, which it says allowed the firm to offer its service "completely free of charge".

For Klarna’s longer term financing option, sometimes the customer has to pay a small interest charge.

Why has Klarna offered a ‘pay now’ option?

Klarna has offered customers the option of paying for goods up front for sometime in other areas outside of the UK and says it has proved to be popular.

Yet opponents to the buy now, pay later market say it has got ahead of an expected clampdown from the Treasury with fears firms are encouraging people into debt.

The government announced buy now, pay later firms would be regulated by the Financial Conduct Authority (FCA), with a Treasury consultation expected to be released soon.

Having FCA oversight would give customers of buy now, pay later firms a financial ombudsman to report any issues to if they were not happy with the service.

What has Klarna said?

Klarna chief executive Sebastian Siemiatkowski unveiled the new “pay now” option.

He said: “We firmly believe that most of the time, people should pay with the money they have, but there are certain times where credit makes sense.

“In those cases, our BNPL products offer a sustainable and no cost healthy form of credit – and a much-needed alternative to high-cost credit cards.

“The changes we are announcing today mean that consumers are fully in control of their payments whether they pay now or pay later.”

Klarna also said it plans to improve affordability checks, make its descriptions easier to understand, and remove all remaining late fees.

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