Klarna Debuts Late Fees in UK to Reduce Missed Payments

Payments company Klarna has debuted a program to reduce missing payments among its U.K. borrowers.

The Swedish buy now, pay later (BNPL) provider announced recently it has historically not charged a late fee in the U.K., despite doing so in other countries. Now, that’s about to change.

“Not charging fees feels customer-friendly, but we’re worried it drives the wrong behavior,” said Alex Marsh, head of Klarna’s U.K. operations.

Marsh adds that company data shows that not having late fees gives consumers less incentive to pay on time, leading them to fall behind.

“It’s like a city with no parking tickets; it sounds great, but in practice turns out to not be so great,” said Marsh.

The company — which stressed that 99% of its customers pay on time — said late fees have improved on-time payments in Belgium and the Netherlands by 25%. That’s why it now wants to introduce a small fee for late payments in the U.K., while rolling out tools to prevent missed payments entirely.

These tools include automatic payments, payment reminders, and a seven-day grace period before levying a fee. In addition, Klarna will use the fees it collects to help customers who have fallen behind on their payments.

“Under the Customer Recovery Programme, to be launched later this year, Klarna will proactively contact customers with long-overdue payments and offer to waive 50% of their balance,” the release said.

Klarna’s new venture in the U.K. comes as delinquencies are on the rise in the U.S. amid a spike in consumer spending.

“Just as consumer spending news was splashing across digital headlines worldwide, the two biggest banks in the U.S. stated in Securities and Exchange Commission (SEC) filings that their credit card delinquency rates had risen,” PYMNTS wrote recently.

Bank of America reported that its Master Credit Card Trust II delinquency rate rose from 1.03% to 1.09% between December and January, while its net charge-off rate went from 1.43% to 1.50%. During the same time frame, JPMorgan Chase’s credit card delinquency rate climbed from 0.76% to 0.83%.

Days earlier, Discover Financial’s SEC filing showed a steady increase of credit card delinquencies. That same week, the Federal Reserve Bank of New York announced that total household debt held at $16.9 trillion as of Q4 2022, up 2.4% from the previous year.

“Missing credit card payments is no small matter for most U.S. consumers, as fees and penalties quickly add up,” PYMNTS wrote. “It may also signify how stretched U.S. consumers’ budgets are.”

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