Klarna It With Total Processing.

Author

Abdullah Abdelkafi

Date

20 Feb 2020

Read time

4 Minutes

Payments

Total Processing is happy to announce that Klarna’s popular pay later scheme is now available for merchants to offer via our payment gateway to consumers, as a diverse, tiered and user-focused payment method.

Klarna; a Swedish banking institution, was set up in 2005 but launched across the UK in 2017 with a current market value of £2bn.

Since its founding, Klarna has gained success and notoriety in its premise through partnerships with popular retail institutions on a worldwide basis. Through brands such as H&M, ASOS and Boohoo, Klarna is now known to be Europe’s largest finance company in both its worth and collaboration with over 190,000 retailers; servicing over 60 million consumers in more than 14 countries.

Klarna allows Merchants to offers their customers up to 4 variations of pay now and pay later schemes at the checkout:

Klarna Slice it: This pay by instalments service allows customers to pay for a transaction over a period of 6-36 months. However, this service is subject to both a credit check, interest (of approx 19.99% if the balance is not paid in full each month) and ultimately, late fees.

Klarna Smoooth: Klarna Smoooth (with three o’s) staggers a transaction cost across three monthly payments. Paid directly from the consumer to Klarna every 30 days; the first third of the payment is taken upon dispatch of the order. Klarna Smoooth is an interest-free payment method.

Klarna Pay in 30 days: With no added interest or late fees, this method allows a customer to pay for purchases direct and in full within 30 days of shipping.

Klarna Pay Now: An alternative to Apple and Google Pay, this method allows customers to pay direct and in full with one-click payments; reducing the need to fill out lengthy or unnecessary form fields – as well as reducing the opportunity for human error and chargebacks.

How is Klarna managed?

Klarna is managed by the consumer. With notifications and statements available via email and via push notifications, a consumer can access their complete order history by Klarna’s website or app.

The introduction of Klarna to e-commerce spaces introduces an open-banking institution that takes and expands alternative methods with a cumulative answer to modern payments, and an alternative to credit cards for a populating demographic of equally alternative consumers.
With the same ability as OEM Pay (original equipment manufacturers i.e. Apple Pay) offerings to maximise the potential to increase checkout conversions, Klarna has projected goals of increasing the average spend at the checkout by 34% and reduce abandonments by 44%.

Why is Klarna so popular?

Klarna is most used across the millennial demographic – this is no surprise, given that this generation is not only the largest in consumer spending, but the largest amongst alternative payment methods.

As mentioned, millennials are also more likely to use Klarna due to a desire to avoid credit cards in the efforts to minimise additional debt after entering society with lasting education costs and lifestyles-on-finance.

Referenced across many outlets as a card credit replacement scheme, studies found that 48% of consumers with an income below £19,500 GBP (approx) were did not apply for or were refused credit cards; instead preferring to use debit cards or APMs. Either way, millenials aren’t keen to take out a loan.

The lure of an interest-free pay later scheme here is self-explanatory; and the design of email statements and a push-notification reminder system gives an air of ease that’s all too easy to comply with.

Outside of generational boxing, pay later schemes cater to consumers the same way credit cards do – without the risk to your credit score.

With payday perhaps waiting further down the horizon, Klarna asks ‘why wait?’ in a society of instant gratification and fulfilment in the new e-commerce dream.

Isn’t it Risky?

When using Klarna, the merchant always gets paid in full from the second a transaction is made.
Klarna accepts the risk of the transaction and merchants are protected against further fraud; as long as they comply with each country’s designated shipping policy.

Klarna instead makes its money from a transaction fee to each retailer of 20 pence – plus a variable rate that is dependent on the payment scheme.
There also stands to be an obvious profit to be made from the interest of the APR involved in Klarna’s ‘Slice It’ offering.

Further, in protecting the consumer, Klarna’s refund policy ensures that an item is refunded in part or full depending on how much of the transaction has already been paid off. If an item is returned before anything has been paid, then the repayment is cancelled.

Whilst Klarna has been viewed as a gateway to binge-consumerism and debt for millenials; it can be considered an accessible option to a demographic with less disposable income – who are more hesitant to sign up to credit cards.

In response to this criticism, a spokesperson for Klarna said: “none of our customers can make unlimited transactions. We have thresholds in place to ensure that a customer makes a payment on their current purchases before they are able to make any further purchases, to prevent overspending and encourage responsible purchasing.”

The option to pay with Klarna for merchants is weighed up against its popularity as an APM and the increase in order value it brings – versus the fees it charges per transaction. However, there has been an estimated 20% increase in purchase frequency for customers using Klarna’s basic 30-day plan, that suggests the payment scheme is at least worth some consideration.