Debt trap “buy now pay later? Users show their klarna debts

More and more users are showing their high Klarna debts on the web – an expert explains how "buy now, pay later" doesn’t become a trap

Professional photo Solveig Rathenow

A new trend is piling up on the social media platform Tik Tok. Users show each other excerpts of their outstanding debts under the hashtag "#Klarnaschulden".

First, the portal "Finance Forward" had reported on the trend. Klarna, a payment service provider that makes it possible to buy in 14-day installments, also views the trend with concern, as a spokeswoman says.

Josefine Lietzau, financial expert of the portal "Finanztip", advises consumers to compare prices to avoid falling into the debt trap.

A young woman points with relief at a screenshot behind her. "You have no outstanding debts" is written there in Klarna’s design. "Didn’t think I’d see this," the user writes about it. The video was uploaded to the social media platform TikTok.

On the platform, otherwise known more for dance challenges and playback singing, there is a new trend. Under the hashtag #Klarnaschulden, young men and women upload videos showing their outstanding debts to Klarna. The amounts move quite also in the four-digit range. First the portal "Finance Forward" had reported about the trend.

Payment service providers as lucrative business models

Klarna is a payment service provider in the so-called buy-now-pay-later sector (German: "Buy now, pay later"), abbreviated BNPL. In simple terms, such companies offer installment payments with one click.

Klarna enables customers shopping online to buy goods and pay for them 14 days later, for example. For a fee, users can also extend this payment period. Unknowingly, ever higher mountains of debt can accumulate in this way. Other payment service providers also offer this service, for example Paypal. The latter had announced that customers in Germany could now also pay for their goods only 30 days after purchase, instead of after 14 days as before. In these cases, the payment service providers pay the merchants in advance and then recover the money from the customers – also by means of reminders and the associated additional costs if the deadlines expire.

Debt trap "buy now pay later? Users show their klarna debts

From the business side, these digital installment businesses are a trend that investors are also happy to put their money into. It’s not for nothing that Klarna is currently valued at $45.6 billion, making it the most valuable European tech company. The Swedes have long since gone global, wooing young customers with testimonials such as rappers Snoop Dogg, Asap Rocky and singer Lady Gaga.

Klarna is watching the Tik-Tok trend with concern

The pandemic played right into the hands of Klarna and other payment providers of its kind. After all, online retail boomed in times when customers shunned brick-and-mortar stores. The fintech company from Sweden has long wanted to be more than just an installment payment company and has recently also been enticing customers with an account – with interest.

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A spokeswoman for Klarna said at the request of Business Insider: "The current trend on TikTok to flirt with debt or payment reminders, we observe with concern. Neither do we want to encourage disproportionate spending, nor do we profit from the dunning process."The amount of the reminder fee is 1.20 euros.

With some methods they also try to protect themselves against penniless customers. "Before every purchase, we carry out a comprehensive credit check on our customers using internal and external data points (z.B. Schufa) and also continuously check preventively whether payment defaults could be imminent," says the spokeswoman. Allow only those for the payment methods that could repay the corresponding amounts. And further: "In case of insufficient creditworthiness, we also reject customers. Our business model is based on customers* paying back their debts within the given time and do not benefit from default or reminder fees," says the spokeswoman.

Four reminders until collection procedure

In addition, Klarna set spending limits for each customer and customer would be limited in the event of a negative purchase history. If someone misses a payment deadline, they are blocked from future payments. So it is not possible to "accumulate" debts, argues the spokeswoman.

But these measures are not just intended to protect customers from debt. Klarna is also protecting itself in this way. After all, non-payments also hit the company that pays in advance. The default rate is only one percent worldwide, explains the company spokeswoman.

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And she also gives detailed information about the reminder process at Klarna: 14 days after the order is placed, payment is due at Klarna according to this. However, the customer receives an initial reminder as early as two days beforehand, i.e. twelve days after placing the order. This is still free of charge.

However, if the invoice has not been paid after 14 days, a payment reminder will be sent on day 15. If still not paid, comes on day 20 the first reminder with the fee of 1.20 euros and a deadline of ten days and three additional days, which they grant "as a gesture of goodwill. If the debt is still outstanding after 33 days, the second reminder follows – again with a new deadline of ten plus three days in which all debts can be settled. If the receivables are still not paid 46 days after the order is placed, the third and final reminder is sent. After that, Klarna calls in a debt collection agency.

Debt trap "buy now pay later? Users show their klarna debts

"In total, Klarna reminds the customer* four times after the due date to pay the outstanding amount, grants up to 59 days of deferral after the original payment deadline and charges a maximum of 3.60 euros fee until a collection agency is called in to collect the outstanding debt," the spokeswoman explains.

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Josefine Lietzau, financial expert at the "Finanztip" portal, nevertheless takes a critical view of digital advice services. "If you pay for your purchases with borrowed money, you are actually already in debt. Whether this becomes a big problem depends on whether one’s finances were already shaky beforehand and whether one can still keep track of things despite the installment purchases."The more and more often you pay in installments, the higher the risk of losing track of your debts. "Or the financial burden becomes too high – also because something unforeseen might happen that exacerbates the situation," Lietzau tells Business Insider.

Financial expert advises repayment plan

However, she does not see a specific problem for a young target group. "It’s mainly people who want to consume more than they can afford and people who don’t keep track of their finances who are at risk."In this group there are certainly some young people, since they lack the experience and they simply have even less money available. "But even older people are not safe from debt," says the financial expert.

And what should they do to avoid falling into the debt trap??

Lietzau: "The ‘easiest’ way is certainly not to buy something for which you can not directly raise the entire amount in one fell swoop. If that’s not an option, consumers should compare prices."If you do decide to buy in installments, you should take a closer look at the terms and conditions for financing. "You might get a cheaper price for the goods at a retailer, but worse terms when it comes to financing," Lietzau points out.

Debt trap "buy now pay later? Users show their klarna debts

In addition one should program oneself reminders of the payments, for instance on the cell phone. If there are several financing options, a kind of repayment plan would also help: "In this, you combine the installment payments with other expenses that you have and hold them against the income. Then it’s easier to see when the situation is getting really sticky," says Lietzau.

The financial expert believes that the trend of installment payments will continue. "Even our parents and grandparents paid for their kitchen or wall unit in this way, for example. Now even younger payment providers are entering the market internationally. As long as they can earn money from this service, the trend will continue," says Lietzau.

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