The buy now, pay later trend is rapidly gaining traction, with an increasing number of consumers utilizing these payment plans for various purchases, including clothing and concert tickets. This financing option typically involves small, interest-free loans that are repaid in manageable installments over short timeframes. Randis Dennies from Memphis, Tennessee, shared his positive experience with the payment method, stating, “I think it makes it better for consumers because it’s an option to where, if something happens, I have easy access to purchase something.” Dennies frequently employs this method for expenses such as groceries and airfare, favoring Klarna as his provider.
Klarna, which originated in Sweden two decades ago, recently made waves by proclaiming its U.S. stock market debut after a postponed offering earlier in the year. As of the end of the trading week, the company’s valuation reached approximately $16 billion, placing it as a competitor against other financial entities like Affirm, valued at over $27 billion, and PayPal nearing $64 billion. With more than 26 million users across the United States, Klarna is now positioning itself to broaden its reputation beyond just the buy now, pay later model, aspiring to introduce new product lines, including a new card and mobile phone plans. CEO Sebastian Siemiatkowski remarked, “We look at the U.S., we’re like, wow. We can offer products that are so much more affordable, so much better, and we can still make money.”
However, Klarna’s ambitions have attracted scrutiny, particularly regarding its collaboration with the food delivery service DoorDash. The announcement sparked online conversations warning consumers against accruing debt over seemingly trivial purchases like burritos and pizzas. Siemiatkowski defended the move, clarifying that approximately 20% of Klarna’s transactions occur through debit, where users pay the full amount without incurring any debts.
Despite the convenience that buy now, pay later options provide, they have also raised concerns among regulators, lawmakers, and financial experts. Caleb Silver, Editor-in-Chief at Investopedia, pointed out the potential risks, acknowledging that while these plans are beneficial for individuals lacking credit cards or facing steep interest rates, they can lead to impulsive spending behaviors. A recent LendingTree survey found that 41% of buy now, pay later users reported making late payments within the last year, an increase from 34% the previous year. Missing payment deadlines may incur late fees or interest, depending on the specific plan.
Klarna insists that most of its users manage their payments responsibly, although the company noted a slight rise in credit losses recently. Siemiatkowski did recognize that short-term loans could lead some users to financial difficulties, stating, “For sure. And I mean, as any form of credit, they will, right? But if I look at the actual outcomes, I know our losses are 20, 30% lower than credit cards. So I know the product is healthier, but it’s still credit.”
As economic uncertainties loom with high interest rates, persistent inflation, and signs of job market fragility, many consumers are embracing buy now, pay later options. Dennies affirmed his commitment to using Klarna, saying, “As long as they allow me to use Klarna, I will be using Klarna.”
