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Finance & Investment
Can ‘Buy Now, Pay Later’ Be Used for Good?

It is easy for people with money to write off services such as these for those who don’t have it, but there is a massive opportunity for Klarna to rewrite the rules of ’buy now, pay later’ and create genuinely positive impacts.

The UK’s Treasury has announced that ‘Buy now, pay later’ firms such as Swedish fintech giant Klarna will now face Financial Conduct Authority (FCA) regulation. The move follows recent widespread concern about the effect of these companies, which easily allow consumers to stagger the payments of purchases — and in some cases, pushing people into high levels of debt. Their popularity has surged during the pandemic; and Klarna, in particular, has managed to bolster its brand fame by using smart, irreverent marketing campaigns, targeted at younger customers.

News of tighter regulation is welcome and follows political pressure from Members of British Parliament including Stella Creasy and financial experts such as Martin Lewis, but is regulation the only answer? It is easy to write off this category completely, particularly by those who have never had a problem accessing cash. But, in a world where some people do need these types of business to access cash, there’s an opportunity for brands such Klarna to offer a more sustainable approach.

Klarna is certainly a very ‘customer-focused’ brand, and advocates for both responsible lending and spending. Before news of official FCA oversight broke, Klarna came forward to say it wanted to work with the regulator to bring its service up to date, to be more relevant to consumers’ needs and the products they use. However, despite this, it has been hard to ignore the reports of spiralling debts and stress suffered by customers, or the often-frivolous way the company presents the idea of debt and encourages consumption.

The BBC has suggested it is driving the trend for shoppers finding it all too easy to overspend, and getting into unmanageable debt as a result. And this is just one side of the coin. Brands such as Klarna, and the retailers they work with, could also do more to help people think about the impact of their spending — not just on their financial situations, but also on the planet.

Klarna is already making some strides in this area. On the 1st of March, the brand announced that 1 percent of the $1 billion in equity it recently raised will be reinvested into solving global sustainability issues. While this is a welcome commitment, spending to address sustainability problems doesn’t touch on the fact that Klarna’s business model could actually be contributing to these sustainability problems in the first place. If we continue to blindly encourage consumption and fuel systems such as fast fashion, we will never make the changes required in mindset or behaviour to reduce our personal and collective impact on the planet.

It is impossible to ignore the excess consumption that ‘buy now, pay later’ is fuelling, and its knock-on environmental and social impacts. As much as Klarna might not be responsible for what people buy, it is contributing to impulse buying and excess consumption — which are a recipe for wasted materials (production), energy (logistics and manufacturing); and the human cost of fast fashion in the form of poor working conditions, among other issues.

This is a difficult challenge for a business when its model is based both on debt and consumption! But all is not lost. Klarna has an opportunity to innovate and transform the category. If the company is really intent on putting its young customers’ financial wellbeing at the heart of its brand, its impact could be much more positive. Here are three areas that Klarna, and others, could focus on:

  1. Communications — As well as investing in statement marketing, out-of-home messaging and light-hearted influencer campaigns, Klarna’s marketing and comms could address initiatives that focus on behaviour change — encouraging more responsible money management and promoting sustainable choices. The company has started this work, but could become known for it. With its brand, voice, recognition and consumer reach, it is perfectly poised to have a disproportionately positive impact and ensure positive brand recognition. Purpose could not only build Klarna a positive brand image, it is also a powerful differentiator — but this means action and innovation, not just communication. Having a strong social purpose is one of the most effective ways to spark interest and to inspire customers, creating a reason for customer loyalty beyond glossy marketing campaigns.

  2. Innovation to help people manage money — Businesses that care about the wellbeing of their customers have action at their core. Klarna could use its customer-centric approach to truly understand consumer behaviour and work to help them, not just profit from them. This means encouraging moderated and sustainable spending. Klarna will say this is already happening; but in many cases, this is about providing support in managing debt, rather than providing guidance in managing money. The tools are there — but more investment in tracking, modelling and supporting customers could ensure that the business provides a genuinely useful service to customers learning to manage their money or struggling with cash flow.

  3. Focus on sustainability — Klarna has an opportunity to tap into an issue that is on the mind of many of its customers. It could help to promote more sustainable choices when people do spend money, and also raise awareness around sustainability and overconsumption. This would of course have a significant impact on its business model and partnership structure; but by working with retailers, it could really help accelerate the demand for more sustainable choices — particularly in the fashion industry — as well as promote more measured behaviour amongst its customers.

So, where could Klarna find inspiration? Others have tried this, and some are more relevant than others. Barclay’s sidekick campaign is a great example of a brand using its marcomms spend to tackle these issues — although to Klarna’s audience, a message like this could appear patronising. Maybe instead, it could take inspiration from UK-based money-management app Plum — another customer-centric brand that is working with TikTok influencers to promote its saving platform, with a relatable “you’re not alone” message about how tricky saving can be. This clever and reassuring messaging is also matched by the product’s infrastructure. The app itself is built with behavioural science in mind — removing barriers to saving by minimising the impact on customers’ lives.

Positive action — and in this case, leadership — is key to delivering purpose. Klarna cannot just rely on regulators to course-correct when things go wrong. This requires creativity, ambition and making difficult choices that could see Klarna redefine not only itself but its industry.

If this doesn’t happen, and the brand doesn’t truly consider what its promise to its customers means in terms of the way it does business (rather than just text on their website), Klarna will always be on the edge of a bad news story — with its customers often on the edge of bad debt. This a golden opportunity for a customer-centric, influential business to put purpose at the heart of what it does, to stand out by leading innovation in a challenging category. It is easy for people with money to write off services for those who don’t have it, but this is an opportunity for a brand to rewrite the rules of ’buy now, pay later’ and create genuinely positive impacts.


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