It’s a well-known fact that people spend money online and in retail stores when they use a credit or a debit card. Because physical cash is not exchanged between a retailer and their customer, it seems that, somehow, we’re absolved of the financial pain from the customer of making payment.
And if the experience of Klarna is anything to go by, then British retailers wanting to offer as many payment options to their customers as possible should investigate the possibility of partnering with them.
Why? In this article, we cover:
- What services Klarna offers to consumers
- The UK retailers already using Klarna’s services
- How the three different payment options for customers work and when you get paid
- How Klarna uses credit checking on your customers
- The three ways you can incorporate Klarna into your payment processing
- Additional Klarna services for retailers
- What users of Klarna say about the service
- Deciding whether Klarna is right for your business
What does Klarna do?
Klarna offers customers the ability to buy now and pay later for goods they purchase from registered retailers. They can either defer payment for 30 days or pay over 3 instalments with no interest to pay. Alternatively, they can spread the cost over a period of 6 months to 36 months at a maximum interest rate of 18.9% APR.
Customers can take advantage of these payment options either online or instore.
Which retailers are also using Klarna?
Klarna is used by over 300 different retailers in Britain at the time of writing – a mixture of online-only retailers and retailers with both a web presence and a retail footprint.
Some of the better known UK retailers using the service include allbeauty, asos, boohoo, Burton, Dorothy Perkins, Ego Shoes, Evans, Expedia, Game, Homelia, hype, In The Style, JD Sports, John Greed, Koi Footwear, Lavish Alice, Little Mistress, Long Tall Sally, Miss Selfridge, Missguided, Nova Tech, PrettyLittleThing, and Samsung.
Who is behind Klarna?
Klarna is a banking institution based in Stockholm in Sweden. They have 2,500 employees and the company handles over $20bn a year in sales annually. They work with over 205,000 businesses, process 1 million transactions every day, and, to date, have provided retail credit services to 85 million customers.
Payment options for your customers
Klarna offers three different payment options for customers either in your store or on your website when your client is either in front of you or online.
Each of Klarna’s payment options attracts a transaction fee however they offer better lower fees to merchants likely to process more than £50,000 worth of sales through Klarna.
Full seller protection is offered on all options so, if the other payments are not collected (in the absence of any complaint against you), then no money will be clawed back from you.
Pay in up to 3 interest-free instalments
You can offer your customers the ability to pay in up to three interest-free instalments once they’ve reached your checkout.
If your customer selects this option, they’ll be invited to enter their credit or debit card details. They’ll be shown on their screen the value of each of their payments and the days on which they will be taken (today, 30 days’ time, and 60 days’ time). Customers are sent a reminder shortly before the 30th day and the 60th day that an attempt to take payment will be made.
When the purchase is completed, Klarna will take the first of the three payments and, at the same time, pay you the full amount due minus their fees. They’ll then collect the second and third payments from your customer on the due date. 0% interest is charged to your customer
If your customer selects this option, the cost to you will be up to 5.4% of the value of the transaction plus 20p.
According to the company, the adoption of this system leads to a 55% increase in order values. In addition, 44% of your Klarna customers on average would not have gone through with the purchase had it not been for the opportunity to pay in three instalments.
The company believes that its service is a good commercial decision for electrical, jewellery, homeware, fashion, and beauty retailers with average order values of between £100 and £800.
Pay in 30 days
With the pay in 30 days option, your customers are again not charged any interest or fees on their purchase. Your customer does not have to submit any payment details (either credit or debit card or bank details) at the point of purchase. When the order is completed, you’re notified and you receive payment upfront and in full (minus Klarna’s processing fee). Klarna contacts the customer 30 days later asking for their payment details.
The cost of these transactions to you, the retailer, is 3.4% of the order value plus 20p. According to the company, customers selecting this option will spend 22% more than if they’re not offered the option.
Pay over up to 3 years
Finally, customers have the ability to pay over a term of between 6 months and 36 months. At checkout, your customer selects the option which will prompt them to fill out a simple application form – the customer does not leave your site during the process.
The decision to grant credit is instant and, upon approval and the customer’s agreement, you get paid in full straight away.
Customers selecting this option generally spend more than £800 with their average basket size between £2,000. APR on purchases is up to 18.9% however, on some occasions, Klarna will offer your customer 0% interest for a portion of their repayment term.
The cost of processing these transactions to your business is 1.9% plus 20p. Using this option, Klarna states that retailers’ average order value increases by 58% and 79% more shopping baskets end up being converted into sales.
Customer credit checking
One of the most frequently asked questions from potential Klarna merchants is on the issues of the credit checking of customers.
For the 30 day payment and the 3-month instalment option, a “soft credit check” is run on your customers as well as an affordability check. A soft credit check will have no impact on your customers’ credit scores and the searches will not be visible to any other companies which run a credit search on them.
If your customer fails to make the repayment dates on either of these options, their credit score will not be affected.
For the instalment options, a hard credit search (sometimes called a full credit search) is run on your customers. These searches are visible to other companies and too many hard credit searches in a short period of time will likely reduce a person’s credit score.
Customer credit limits
Upon the first successful purchase made through the Klarna system, your customers will be assigned a credit limit which they can spend up to in your store and in other Klarna retailers’ stores.
Customers’ credit limits are shown to them when they have signed the Klarna agreement, on their monthly statement, and via the app.
The Klarna app for your customers
Klarna has a consumer facing app downloadable on the Google Play store and Apple’s App store.
With it, customers can see which future payments are due, when, and for how much as well as being able to view a historical list of all the transactions they have carried out with Klarna’s retailers. They can also track future deliveries plus report when they intend to return an item to a retailer and it provides them with the instructions on how to do so.
The app also gives consumers the option to snooze their payments (allowing an extra 10 days past the originally agreed due date), to avoid reminder fees, and to turn either pay in 30 days or 3-month instalment payment option into a finance agreement (subject to status).
How do you take payment from customers?
For internet and real-world retailers, there are three payment processing services offered by Klarna.
Klarna’s Checkout service
With the Klarna Checkout service, shoppers on your site are informed that they can buy now and pay later on the items in their shopping basket. The shopper chooses which delayed payment system they want to use for the purchase. Klarna is compatible with dozens of different ecommerce packages.
If they are already a Klarna customer, their billing and delivery address details are already filled in and all possible payment methods are shown to them. As well as offering the Klarna payment option, your clients will be offered the opportunity to pay by credit or debit card or by bank transfer.
Klarna’s Instant Shopping Service
The Klarna Instant Shopping service allows you to put a button on your site so that customers can purchase from you straight away without leaving your site – ideal for blogs, magazine sites, social media, and so on.
As with the Checkout service, your customer can choose the payment method they prefer and they’ll be sent a reminder when payment is due.
Klarna in your retail store
Klarna Instore is a face to face payment option you can use in-store. You create a new order on the retailer Klarna app, send a link to your customer via SMS, and they can then complete the order on their smartphone. You are then sent confirmation that the order has been processed and you can hand the goods over the customers.
Additional Klarna services
On-site messaging lets your website visitors know before they reach the checkout the different methods they can use to pay offered by Klarna by displaying messages showing the cost per month (for instalment and finance options) or that they can pay in 30 days.
Klarna’s Insights app is a sales and marketing intelligence tool which learns different customer preferences across different time periods and markets. You can better identify average order values and payment preferences to improve overall sales performance through transaction analysis.
Klarna for developers
There is a significant online developers’ knowledge area containing FAQ, documentation, SDKs, and product testing areas so that you can integrate Klarna services as closely as you want with your overall online brand experience.
Klarna’s customers rate the service very highly awarding them an average score of 4.5 out of 5 across over 8,800 reviews on Trustpilot. On FeaturedCustomers, the service scores an impressive 4.7 out of 5 based on 375 user reviews.
Its employees are not quite as enthusiastic as its customers scoring the experience of working for the company 3.6 out of 5 on Glassdoor.
In general, reviews for Klarna are either very positive or very negative. The very negative ones are particularly critical about the company’s ability to help them when things go wrong or on certain financial aspects of how their account is handled.
This could be one of the reasons that some of their employees have reported unhappiness at working there because they may be inundated with complaints but not have the capacity as a company to deal with those complaints.
Should you take up Klarna for your business?
Klarna offers deep integration into both your website and real-world retail payment experience offering your customers a range of quick, simple buy now pay later options.
The company already works with companies selling accessories, automotive goods, beauty product, electronics, fashion and apparel, homewares, outdoors goods, and sports goods. Its retailers number in the hundreds of thousands and the number of customers using those retailers number in the tens of millions.
There has been both recent controversy and adverse commentary made by debt charities about buy now pay later services like Klarna, ClearPay, and Laybuy and the affect these services have on consumers’ credit scores. All three companies deny this with a spokesperson for Klarna claiming that “less than 0.5 per cent of Klarna UK customers have their credit score impacted as a consequence of missing payments.”
There are many different companies happy to help customers spread their payments on purchases they make from your store, from your website, or both. Some might argue that any issues which cause customers’ credit scores to fail were the fault of the consumer who failed to make the payment.
However, even with payment technology as sophisticated as it is, software errors do occur from time to time meaning that a customer may have the available funds but a problem with the system caused the collection of their payment to fail.
There is an outside chance that a customer who falls into difficulty with Klarna and who is pursued by Klarna as a result of those difficulties may blame you for allowing them to make payment in this way.
However, your responsibility as a retailer can only go so far and, with any form of debt, a borrower should be absolutely confident that they can make the repayments in full and on time before entering an agreement.