Klarna will now let you pay them so you can pay them less money

Great news for those of you already feeling subscription fatigue: you can subscribe to buy now, pay later (BNPL) service Klarna for $7.99 a month.

At first look, this seemed pretty fucking weird to me. I mean, the entire point of Klarna is that you can basically do layaway without paying any kind of interest; Klarna has worked with a wide array of retailers — from Dolce & Gabbana to 1-800-Flowers.com to Macy’s — to create this service. So what’s the customer value in the subscription?

Klarna will now let you pay them so you :

Well, let’s say you shop at, I dunno, Target or Kroger or Safeway. These retailers aren’t connected with Klarna, so if you try to use the service there, you have to pay a transaction fee of up to $2. “The main proposition of Klarna Plus right now is that you don’t pay any service fees,” David Sandstrom, the chief marketing officer of Klarna, told CNBC. “So if you love Klarna and if you love shopping at Target and Walmart, it makes a ton of sense financially.”

I am somewhat less sure about that, but we’ll come back to my questions in a minute. What I do feel sure of is that this is Klarna trying to goose its rumored IPO. The subtext of the announcement is, “Hey look, another revenue stream!” After all, Klarna’s value dropped to almost $8 billion from about $46 billion last year, which, ouch. As a result, Klarna has become the poster child of overly exuberant investments in fintech, according to no less of an expert than the Financial Times.

At the risk of sounding like a dang broken record: this is, of course, linked to interest rates. For most of Klarna’s history — the company started in 2005 — interest rates have been pretty close to zero. Easy cash was everywhere! But rising interest rates might make more people fail on their payments.

Klarna offers several ways to split payments. First, paying in four installments with 25 percent down ahead. Second, paying over the course of 30 days. Third, short-term loans, with an APR of as high as, uhhhh, 33.99 percent.

Now, to be clear, part of Klarna’s strategy is that some people won’t pay on time. That means late fees — $7 per missed payment — and finally, debt collection. About a quarter of BNPL users in the UK have been charged these fees in the last six months of 2023, and younger customers were more likely to get stuck with them. Some people also took a hit on their credit score or were called by debt collectors.

Part of Klarna’s value offering is that it doesn’t require a hard credit check, which can affect your credit score. (It does a soft check instead.) So if your credit is bad, you can still use it — and avoid a hard pull that can further lower your credit score. The problem here, of course, is that if you do pay your loan off on time, your credit score doesn’t change. But it can be damaged if you miss payments.

I am going to leave aside the question of whether BNPL generally is bad for society. (There is a strong case to be made that it is, in fact, good.) I want to focus on Klarna, which was profitable from its founding until 2018, Fortune stated. But when the company started trying to grow its position in the US market, it began a long string of quarterly losses, starting in 2019, that only ended last year.

So between the new interest rate environment and the new investor focus on profitability, Klarna has some incentives to offer new goods that will make its IPO juicy. From an investor’s viewpoint, the subscription plan means recurring revenue, which is good, and a new revenue stream, which is also good. And in case you were curious about who that news release is really for, Klarna makes sure to note it’s sprinkled some AI on its business.

But I wonder whether Klarna Plus is a good deal for buyers. Klarna’s news release says that the subscription will save people… $12 a month on fees.

The news release also says that users will get exclusive deals worth up to $30 a month. I find this somewhat befuddling: if you’re in a financial position where saving $12 a month is important, why would you want to be pushed to spend more money with “exclusive deals”? Remember, Klarna’s value proposition to the businesses it courts is that it pushes people to spend more money. “Businesses of all sizes grow with Klarna,” its website says. “Turn our high-intent shoppers into loyal customers with performance-driven marketing solutions.” It promises “up to 70% increase in revenue” to businesses that use Klarna to give “shoppable content that sells.” Hmm!

The UK survey says most Klarna users pay off their debt without incurring fees. For Klarna, the most valuable customers are those who are likely to pay late fees. And the images marketing officer Sandstrom uses are telling: Walmart, Target, Amazon, Costco. You know, the big box retailers where people buy ordinary staples — which suggests the model targets people who are having trouble with increases in the cost of living.

If those people are happily paying off their debt, Klarna gets the subscription fee. I don’t see anything in Klarna’s news release about saving on late fees with Klarna Plus. So if you don’t pay off your loan, you’re paying the monthly fee and the late fees.

Anyway, Klarna may or may not offer more features soon. Originally, ts marketing officer told CNBC that the company was planning to start a high-interest savings account, then retracted his statements after publication. Given Klarna’s IPO plans, I expect any upcoming features will be highly appealing to potential investors. But will they be good for Klarna’s customers?

Updated 7:50PM ET: Clarifies that Klarna doesn’t do a hard credit pull, and adds that the company retracted its marketing officer’s statements to CNBC after publication.

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