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Klarna claims to be better than credit cards – but is its argument flawed?

Written by: Emma Lunn
Klarna reckons its new Pay in 3 feature can ‘eliminate the need to use a credit card’, but an industry expert says the buy now pay later (BNPL) lender ‘fundamentally misunderstands the point of credit cards’.

Klarna has added a ‘Shopping’ feature to its app which allows users to pay in three instalments at any online retailer, regardless of whether or not the store has partnered with Klarna. It says shoppers won’t ever pay more than the price of the product.

The controversial BNPL lender, which suffered a data breach last month, says the new feature eliminates the need to use credit cards when shopping online, making high interest APRs a thing of the past.

The Shopping feature will also integrate monthly budgets and personal spending limit functionalities. Additional features include personalised wish lists and curated content based on consumers’ interests and their favourite stores and price drop notifications.

Klarna is currently running a #WhyPayInterest advertising campaign which it says aims to highlight the difference between BNPL products and credit cards. It says it challenges the ‘outdated credit model’ that saw Brits pay £5.7bn in credit card interest and fees in 2020 alone.

Sebastian Siemiatkowski, CEO of Klarna, said: “At Klarna, we believe that no-one should ever have to pay credit card fees or high interest rates and now, thanks to our new in-app shopping feature, they don’t have to. Shoppers now can interact with their favourite retailers without having to leave the Klarna app, to create a smooth, safe and frictionless shopping experience. Our one stop shop app is the future of shopping, it creates a truly personalised and bespoke service for every user and liberates consumers from ever paying more than the price of the product.”

But financial experts say that Klarna doesn’t seem to understand how credit cards work in practise.

James Andrews, senior personal finance editor at, said: “The shopping service proudly states that it saves people £144 of credit card interest every 60 seconds, but there’s no interest on credit card purchases for 56 days on a standard card. That means if you split your payment to your card provider in three the way Klarna does, you’re saving yourself a grand total of 0.2% interest on your purchases on a standard 20% credit card APR. If you pay up four days early Klarna saves you nothing.”

Credit cards also offer far more flexibility than Klarna as its ‘Pay in 3’ option can’t be altered. The first payment is instantly ring-fenced on the customer’s card, with the next two payments coming at set 30-day intervals. With a credit card you pay as much or as little as you like, as long as you meet the minimum repayment amount each month.

Andrews added: “Using the right credit card lets you split payments over as long as 21 months currently, with nothing to pay at all for the first 56 days. If you’re making a string of purchases, or buying something expensive, that blows the Klarna offering out of the water.

“Credit cards can also offer you cashback on purchases, loyalty points with major retailers, Avios or other travel perks for when the skies reopen and extra protection thanks to Section 75 of the Consumer Credit Act.

“Of course, you need to use your card responsibly to benefit from all this, but simply setting up a direct debit for the entire balance on a card when you take it out means you never need to think about that again.”

Last year saw Klarna’s Instagram influencer campaign outlawed by the Advertising Standards Authority for encouraging spending on non-essentials during the pandemic.

Then, earlier this year, a study found that a fifth of buy now pay later (BNPL) users were unable to pay back Christmas spending without taking on more debt.

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