The company I work for (in e-commerce) just recently started offering/advertising paying using Klarna.
If you don’t know, (and you can probably guess given the context of this post), Klarna is a company that basically just allows users to buy now and pay over the course of a few weeks. “Buy this $100 item now and pay in four installments of $25 over four weeks” or some such. Anyone can get the app and it gives credit card numbers that will buy stuff online or whatever, and then the paying back process is that Klarna bills the customer over the course of a few weeks.
But companies can integrate with Klarna as well. When they do, Klarna makes everything work like it does with credit cards so the company doesn’t have to completely retool to support Klarna as a payment method. And it’s more convenient for the customer than dealing with the app and manually typing in the credit card number they get from the app.
Here’s the thing, though. There’s no interest charged to the customer. I think Klarna makes its money just because companies pay them money for integrations and for the ability to advertise that customers can buy now pay later and such. And at least in the case of my company’s integration with Klarna, Klarna takes all the risk. They’re lending customers money and hoping the customers pay it back. My employer gets the money up front and isn’t out any money if the customer doesn’t pay. And Klarna is huge. They’re holding a whole lot of debt at any one time. And it’s not secured debt or anything. And I don’t think there are credit checks involved.
Really seems like a risky thing. Just like risky mortgages are. If a significant number of customers were to default on their debt at the same time (and not all Klarna purchases are $6 pizzas, some are multiple hundreds of dollars worth of debt), I’d imagine Klarna would be out of business quicker than Enron. Or maybe they’ll be “too big to fail” by that point and they’ll get a bailout.
Either way, it seems like a not-insignificant chunk of the economy is teetering atop the pencil-balanced-on-its-point that is Klarna. I’m not sure if there are a lot of other companies offering similar services, but if so, that just makes the economy seem that much more precarious.
They make money from people’s mistakes and/or desperate situations.
As in: if a customer doesn’t pay one of the payments exactly on time they turn into loan sharks with “penalties” vastly exceeding the loan price.
They’re not “hoping the customers pay it back”, it’s almost the opposite - they want people to miss a payment or two and end up paying way more than the actual loan.
This is how they make money. It’s the only way they make money. The Maths of their business model don’t work out if people don’t make mistakes and thus don’t end up paying penalties.
So they have a huge incentive to do everything they can to make it easy to get into their scheme (hence they treat sellers well so that going through them as a payment option is as seamless as possible), to make it more likely that customers make mistakes and to make it hard or even impossible for customers to leave that scheme without going through the full minefield: they’re basically enshittifying the seller’s website, making it similar to providers with subscriptions who make it hard for people to cancel those subscriptions.
It’s really not worth it to get into that shit as a customer and, if people who get stung by those practices also blame the seller, it’s probably not also not worth it for a seller selling low value items as it might add but a handful of sales from the few customers that do need a loan for that, whilst damaging their own brand name by being associated with what are basically modern loan sharks.
This is how they make money. It’s the only way they make money.
That is not correct. Klarna is functionally a payment processor, like an advanced type of credit card, and charges the merchant fees per transaction. For example, see here. They are highly cagey about specific fees until you actually sign up, and it depends on region and business size. But interchange fees are where the majority of their revenue comes from. To my knowledge, the fees are typically 3 percentage points above what the merchant would pay for a credit card transaction.
The reason merchants still accept Klarna despite the high fees is of course, improved conversion rates and decreased risk. Klarna assumes all the risk of the customer not paying, the shop gets all of the money instantly and doesn’t have to worry about it for the most part. That mainly makes it attractive for high margin shops that don’t mind spending lots on marketing to get a few extra sales (fashion, perfume, high end electronics).
I’m not too knowledgeable on how Klarna deals with late fees, but I’m pretty sure it differs per country they operate in. Many places have regulations limiting the abuse of late fees. I wouldn’t be surprised if the US is not that kind of place, and people who are late get fucked with fees.
In general, I agree with the second part of your comment and I do not recommend using any buy-now-pay-later kind of scheme, because you’re taking on additional risk for no real reason. Lots of stuff can happen even through no fault of your own (check engine light? Job downsizing?) that will affect your expected future income.
I forgot that when I read about it, it was also mentioned they got payment processor fees.
As for the way they handle late fees, the article I read was about the US (somebody posted an article about it here in Lemmy not that long ago) and indeed some other countries limit that sort of thing in general, so it should apply the same to this kind of operation.
This reminds me of PayPal from 25ish years ago. There wasn’t a convenient way to transfer money online and they built a solution. To achieve critical mass, they offered people $10 to sign up and a $10 referral bonus (if your friend get $10 and you get $10). PayPal burned a lot of investor money to do this, but it paid off when they became the dominant payment method for eBay auctions. In short, it was a costly investment that paid off.
Klarna is trying to become the PayPal of e-commerce, displacing credit cards (and PayPal) and becoming the default means of paying online. Once they start to slow in their growth, they can do the following:
Charge merchant fees.
Charge service fees.
Charge interest, (waiving it for debit-like transactions).
Offer purchaser subscriptions with enhanced features and reduced costs.
Push exclusivity agreements by offering discounts against steep fees.
Sell data.
This last point is particularly powerful because they also have the bill of sale, which most payment options don’t. If they offer point-of-sale systems that also collect detailed data, it would further allow them to track people.
I suspect that they are classified in a way that existing restrictions on payment networks do not apply to them. E.g., they may technically be a lending company but act as a payment network; they may be considered the customer in a transaction, that resells the item to the purchaser, etc. Lending companies aren’t expected to work with the copious amounts of detailed data that stores and payment processors do (e.g., Payday Loan doesn’t know I spent part of my loan on a suitcase of Bud Light). Imagine an insurance company knowing how many drinks your table bought at a restaurant, then holding it against you when you make a claim. Or having a job offer revoked because you bought a copy of the Communist Manifesto to see what all the hubbub is about.
Even knowing this and the grand plan, I feel like I get sucked in, too. It starts as “wanting to stick it to the man” by taking them up on whatever overly generous deal they feel like offering. “I know they’ll get rid of it eventually, but there’s no harm in abusing it while I can”. But any “good” company won’t just instantly quadruple their prices and sack all of their customer service staff on the spot. It’ll always start off slowly. They’ll offer promotions that are 5% less generous, they’ll start to charge bag fees or service charges. They’ll impose minimum transaction amounts. Etc.
By the time it becomes obvious, it usually too ingrained in your life, and the lives of many others to easily ditch. I saw this happen a lot with uber eats and Doordash. During COVID, they were paying people to stand at train stations and hand out flyers. They’d be offering like 50, 60, 70,.sometimes 80% off your order. Some of them were one time use only, but the lower value ones like 40% were usually reusable if you got a new code. Eventually by this point where you have to sign up for a monthly subscription to get any discount, it’s already kinda ingrained in my life and once or twice a week when I “can’t be arsed cooking” I end up just ordering something in and blowing 20 or 30 bucks on a meal rather than just keeping a pizza or some salad or other easy meals in the freezer
I could rant for a long time about the uberification of food delivery. Even places offering “in house” food delivery usually end up using on demand uber eats drivers anyway. Then they’ll have the audacity to mark everything up 30%, charge a card surcharge, service fee, bag fees, priority delivery fee, on top of a delivery fee. Places that manage their own deliveries with hourly employees, not “iNdEpEnDeNt CoNtRaCtOrS” goes in my good books
Reminds me of something I heard back in 'zine times. “The trick is not to ignore the mainstream, but to selectively raid it for things we can use.” -Mike Gunderloy. The resources are there, so go ahead and use them – just do it on your own terms, consciously. I don’t have Amazon Prime, but when my elderly relative needed a safety device and I could only find it on Amazon, you bet I got it from there.
I use affirm pretty often and usually there are options where you extend the term a few months but add interest. Haven’t paid interest cause I have that luxury but being able to extend large purchases over 2-3 months without interest is amazing.
Oh it’s well hidden in the details, but the interest gets paid. In fact, if you miss a single payment, you pay everyones interest. And they will absolutely come after you for an originally tiny amount of money.
That company and business model is shaddy as hell, although I’ve met some engineers some years ago that seemed pretty competent, but I’ve suffered and learned enough over the years to know that it doesn’t matter if the c-level ppl is all bullshit.
Here’s the thing, though. There’s no interest charged to the customer. I think Klarna makes its money just because companies pay them money for integrations and for the ability to advertise that customers can buy now pay later and such. And at least in the case of my company’s integration with Klarna, Klarna takes all the risk. They’re lending customers money and hoping the customers pay it back. My employer gets the money up front and isn’t out any money if the customer doesn’t pay.
Your company pays a transaction fee just like with a credit card. Except it’s usually roughly twice as expensive as a credit card. This is what allows Klarna to take on all that risk, generally. For your company this is essentially a marketing expense. Offer a convenient way to pay in return for a few percent of the transaction (3-6% + a fixed fee, $0.30 perhaps).
Klarna generally partners with some financial firm to finance these short term loans, and they use the merchant fee to pay interest. These can be as high as 25% APR. It’s a high risk loan.
I typically use Zip, which is the exact same thing, I don’t tend to rail against it like most Lemmy seems to do. Maybe they make things a little too easy for those who are terrible with regular credit cards and debt management to begin with, but many around here equate them to loan sharks and Paycheck Lending/Car Title Loans type places and those are absolutely predatory as fuck. Klarna and Zip aren’t even close, they’re closer to credit cards if anything.
Since there’s no interest (on zip there is a 4$ flat fee per order though, dunno if klarna does the same), it’s basically just the classic saving up for what you want, but you get the item right away.
Say you wanted to buy a $100 item, you have the income to save for it 25$ every 2 weeks but not to take the entire load at once, Zip would be the same as saving 25$ every 2 weeks on your paydays, except you get the item right away. And unlike real predatory loan places, like you said it’s all unsecured so if you default on it, eh oh well.
The company I work for (in e-commerce) just recently started offering/advertising paying using Klarna.
If you don’t know, (and you can probably guess given the context of this post), Klarna is a company that basically just allows users to buy now and pay over the course of a few weeks. “Buy this $100 item now and pay in four installments of $25 over four weeks” or some such. Anyone can get the app and it gives credit card numbers that will buy stuff online or whatever, and then the paying back process is that Klarna bills the customer over the course of a few weeks.
But companies can integrate with Klarna as well. When they do, Klarna makes everything work like it does with credit cards so the company doesn’t have to completely retool to support Klarna as a payment method. And it’s more convenient for the customer than dealing with the app and manually typing in the credit card number they get from the app.
Here’s the thing, though. There’s no interest charged to the customer. I think Klarna makes its money just because companies pay them money for integrations and for the ability to advertise that customers can buy now pay later and such. And at least in the case of my company’s integration with Klarna, Klarna takes all the risk. They’re lending customers money and hoping the customers pay it back. My employer gets the money up front and isn’t out any money if the customer doesn’t pay. And Klarna is huge. They’re holding a whole lot of debt at any one time. And it’s not secured debt or anything. And I don’t think there are credit checks involved.
Really seems like a risky thing. Just like risky mortgages are. If a significant number of customers were to default on their debt at the same time (and not all Klarna purchases are $6 pizzas, some are multiple hundreds of dollars worth of debt), I’d imagine Klarna would be out of business quicker than Enron. Or maybe they’ll be “too big to fail” by that point and they’ll get a bailout.
Either way, it seems like a not-insignificant chunk of the economy is teetering atop the pencil-balanced-on-its-point that is Klarna. I’m not sure if there are a lot of other companies offering similar services, but if so, that just makes the economy seem that much more precarious.
They make money from people’s mistakes and/or desperate situations.
As in: if a customer doesn’t pay one of the payments exactly on time they turn into loan sharks with “penalties” vastly exceeding the loan price.
They’re not “hoping the customers pay it back”, it’s almost the opposite - they want people to miss a payment or two and end up paying way more than the actual loan.
This is how they make money. It’s the only way they make money. The Maths of their business model don’t work out if people don’t make mistakes and thus don’t end up paying penalties.
So they have a huge incentive to do everything they can to make it easy to get into their scheme (hence they treat sellers well so that going through them as a payment option is as seamless as possible), to make it more likely that customers make mistakes and to make it hard or even impossible for customers to leave that scheme without going through the full minefield: they’re basically enshittifying the seller’s website, making it similar to providers with subscriptions who make it hard for people to cancel those subscriptions.
It’s really not worth it to get into that shit as a customer and, if people who get stung by those practices also blame the seller, it’s probably not also not worth it for a seller selling low value items as it might add but a handful of sales from the few customers that do need a loan for that, whilst damaging their own brand name by being associated with what are basically modern loan sharks.
That is not correct. Klarna is functionally a payment processor, like an advanced type of credit card, and charges the merchant fees per transaction. For example, see here. They are highly cagey about specific fees until you actually sign up, and it depends on region and business size. But interchange fees are where the majority of their revenue comes from. To my knowledge, the fees are typically 3 percentage points above what the merchant would pay for a credit card transaction.
The reason merchants still accept Klarna despite the high fees is of course, improved conversion rates and decreased risk. Klarna assumes all the risk of the customer not paying, the shop gets all of the money instantly and doesn’t have to worry about it for the most part. That mainly makes it attractive for high margin shops that don’t mind spending lots on marketing to get a few extra sales (fashion, perfume, high end electronics).
I’m not too knowledgeable on how Klarna deals with late fees, but I’m pretty sure it differs per country they operate in. Many places have regulations limiting the abuse of late fees. I wouldn’t be surprised if the US is not that kind of place, and people who are late get fucked with fees.
In general, I agree with the second part of your comment and I do not recommend using any buy-now-pay-later kind of scheme, because you’re taking on additional risk for no real reason. Lots of stuff can happen even through no fault of your own (check engine light? Job downsizing?) that will affect your expected future income.
Yeah, you’re right,
I forgot that when I read about it, it was also mentioned they got payment processor fees.
As for the way they handle late fees, the article I read was about the US (somebody posted an article about it here in Lemmy not that long ago) and indeed some other countries limit that sort of thing in general, so it should apply the same to this kind of operation.
Luckily, it seems government are finally getting their acts together to regulate these schemes: https://www.choice.com.au/money/credit-cards-and-loans/personal-loans/articles/bnpl-legislation-passes-parliament
Which means they need to register as credit providers, which is what they are…
This reminds me of PayPal from 25ish years ago. There wasn’t a convenient way to transfer money online and they built a solution. To achieve critical mass, they offered people $10 to sign up and a $10 referral bonus (if your friend get $10 and you get $10). PayPal burned a lot of investor money to do this, but it paid off when they became the dominant payment method for eBay auctions. In short, it was a costly investment that paid off.
Klarna is trying to become the PayPal of e-commerce, displacing credit cards (and PayPal) and becoming the default means of paying online. Once they start to slow in their growth, they can do the following:
This last point is particularly powerful because they also have the bill of sale, which most payment options don’t. If they offer point-of-sale systems that also collect detailed data, it would further allow them to track people.
I suspect that they are classified in a way that existing restrictions on payment networks do not apply to them. E.g., they may technically be a lending company but act as a payment network; they may be considered the customer in a transaction, that resells the item to the purchaser, etc. Lending companies aren’t expected to work with the copious amounts of detailed data that stores and payment processors do (e.g., Payday Loan doesn’t know I spent part of my loan on a suitcase of Bud Light). Imagine an insurance company knowing how many drinks your table bought at a restaurant, then holding it against you when you make a claim. Or having a job offer revoked because you bought a copy of the Communist Manifesto to see what all the hubbub is about.
Sounds to me like they’re waiting for people to get used to this model for every purchase before they quietly add interest.
ikr this is literally step 1 of enshittification.
Even knowing this and the grand plan, I feel like I get sucked in, too. It starts as “wanting to stick it to the man” by taking them up on whatever overly generous deal they feel like offering. “I know they’ll get rid of it eventually, but there’s no harm in abusing it while I can”. But any “good” company won’t just instantly quadruple their prices and sack all of their customer service staff on the spot. It’ll always start off slowly. They’ll offer promotions that are 5% less generous, they’ll start to charge bag fees or service charges. They’ll impose minimum transaction amounts. Etc.
By the time it becomes obvious, it usually too ingrained in your life, and the lives of many others to easily ditch. I saw this happen a lot with uber eats and Doordash. During COVID, they were paying people to stand at train stations and hand out flyers. They’d be offering like 50, 60, 70,.sometimes 80% off your order. Some of them were one time use only, but the lower value ones like 40% were usually reusable if you got a new code. Eventually by this point where you have to sign up for a monthly subscription to get any discount, it’s already kinda ingrained in my life and once or twice a week when I “can’t be arsed cooking” I end up just ordering something in and blowing 20 or 30 bucks on a meal rather than just keeping a pizza or some salad or other easy meals in the freezer
I could rant for a long time about the uberification of food delivery. Even places offering “in house” food delivery usually end up using on demand uber eats drivers anyway. Then they’ll have the audacity to mark everything up 30%, charge a card surcharge, service fee, bag fees, priority delivery fee, on top of a delivery fee. Places that manage their own deliveries with hourly employees, not “iNdEpEnDeNt CoNtRaCtOrS” goes in my good books
Reminds me of something I heard back in 'zine times. “The trick is not to ignore the mainstream, but to selectively raid it for things we can use.” -Mike Gunderloy. The resources are there, so go ahead and use them – just do it on your own terms, consciously. I don’t have Amazon Prime, but when my elderly relative needed a safety device and I could only find it on Amazon, you bet I got it from there.
I use affirm pretty often and usually there are options where you extend the term a few months but add interest. Haven’t paid interest cause I have that luxury but being able to extend large purchases over 2-3 months without interest is amazing.
Oh it’s well hidden in the details, but the interest gets paid. In fact, if you miss a single payment, you pay everyones interest. And they will absolutely come after you for an originally tiny amount of money.
That company and business model is shaddy as hell, although I’ve met some engineers some years ago that seemed pretty competent, but I’ve suffered and learned enough over the years to know that it doesn’t matter if the c-level ppl is all bullshit.
https://chaos.social/@leyrer/113667064197803074
Your company pays a transaction fee just like with a credit card. Except it’s usually roughly twice as expensive as a credit card. This is what allows Klarna to take on all that risk, generally. For your company this is essentially a marketing expense. Offer a convenient way to pay in return for a few percent of the transaction (3-6% + a fixed fee, $0.30 perhaps).
Klarna generally partners with some financial firm to finance these short term loans, and they use the merchant fee to pay interest. These can be as high as 25% APR. It’s a high risk loan.
I typically use Zip, which is the exact same thing, I don’t tend to rail against it like most Lemmy seems to do. Maybe they make things a little too easy for those who are terrible with regular credit cards and debt management to begin with, but many around here equate them to loan sharks and Paycheck Lending/Car Title Loans type places and those are absolutely predatory as fuck. Klarna and Zip aren’t even close, they’re closer to credit cards if anything.
Since there’s no interest (on zip there is a 4$ flat fee per order though, dunno if klarna does the same), it’s basically just the classic saving up for what you want, but you get the item right away.
Say you wanted to buy a $100 item, you have the income to save for it 25$ every 2 weeks but not to take the entire load at once, Zip would be the same as saving 25$ every 2 weeks on your paydays, except you get the item right away. And unlike real predatory loan places, like you said it’s all unsecured so if you default on it, eh oh well.