'Buy Now, Pay Later': customer centricity or looming financial crisis?

This month, it was announced that fintech company Klarna has partnered with food delivery giant Deliveroo to bring their ‘Buy Now, Pay Later’ service to the platform.

The integration allows for the customer to select Klarna as an option for payment and either pay the entire cost within 30 days or split the cost into three interest-free instalments over 60 days. Yes, you’re reading that right: you now have the option of getting your Friday night takeaway food through a credit scheme!

It’s a move that has certainly attracted both positive and negative attention, opening conversations on morality, ethics, and customer centricity. Incorporating these credit schemes into what is typically a casual purchase can be a slippery slope leading to negative effects and bad experiences for the customer.

Yet on the other hand, the addition of Buy Now, Pay Later (BNPL) services on Deliveroo and thousands of other services prioritises freedom of choice for the customer. If the customer wants to split the cost of their bill over time, why shouldn’t they be offered this an option? Theoretically, it offers unparalleled freedom in the customer journey to pay exactly how they want.

Klarna undoubtedly positions itself as a customer-centric company at its core – the marketing campaign of making shopping ‘smoooth’ indicates a desire to empower the customer and make their journey easy and efficient. But are BNPL services fundamentally incompatible with customer centricity, particularly in a cost-of-living crisis when consistent usage may quickly leave customers financially struggling?

The dangers for the customer

The potential worry that the inclusion of BNPL services presents across over 250,000 online merchants can be concerning. Since it is such a quickly rising area of fintech, the sector has received criticism for effectively inviting customers to spiral into debt, as many are unaware of the potential ramifications of getting wrapped up in paying in instalments. Jane Clack, money advisor at debt advice firm PayPlan, states:

“This form of introduction to credit does not encourage budgeting and supports the ‘I want it now’ purchases of items people may not be able to afford. We have seen a worrying increase in the number of young people contacting us for free debt advice. It now makes up more than a fifth of our total client base.”

The allure of BNPL can often give way to an over-reliance on the service leading to overspending and debt. An overindulgence in usage of this service can creep up on the customer unexpectedly due to the positive experience felt in the short-term, only to leave them under financial pressure that directly provides the customer with negative experiences in the long-term.

The marketing behind Klarna is also often hit with claims that it attempts to make debt trendy or cool to impressionable customers via the idea of ‘try before you buy’, leading them to engage directly with the platform without having a true understanding of whether they can afford their purchases.

How Klarna commits to customer centricity

Whilst all the concerns above are valid and imminently present when discussing BNPL, Klarna view customer centricity as vital to their brand operations. Their utmost focus is on providing the customer with far more flexibility than they’re accustomed to and charging no interest while they do it.

Klarna insists on offering innovation and freedom of choice to the customer, allowing them to feel in control of their customer journey. This autonomy provided to the buyer serves to further the customer-brand relationship. And to offer the true autonomy that they wish to provide, they must be available on every storefront, whether it’s IKEA, Nike, or Deliveroo. Daniel Lange, VP of Product for Klarna, has said:

“We want to become the world’s favourite way to shop, pay, and bank. To achieve this, we need to be available to consumers wherever and whenever they shop.”  

This idea of having an online omnipresence for customers is a smart strategic move on Klarna’s part, as it fosters emotional connections to the brand through their commitment to making shopping ‘smoooth’, whilst helping the customer feel in control across multiple storefronts.

Customer centric or profit centric?

Although Klarna do make strides towards customer centricity through their ease of use and innovation, the thought of whether BNPL is a customer centric process is still a deeply nuanced conversation.

Klarna do as much as they can to act as a customer centric brand, but are the foundations of ‘Buy Now, Pay Later’ fundamentally flawed and problematic to the idea of customer centricity? It could be difficult for a brand to position itself as a customer centric company when there are legitimate risks involved that are not immediately apparent to the average customer.

It also opens questions about whether BNPL providers are to blame for how customers make use of their services. Is the customer at fault for being financially irresponsible with the tools provided, is the brand at blame for providing these tools in the first place, or a combination of the two?

It’s also worth noting that Deliveroo lost £147 million in profit in the first half of the year, and thus the incorporation of a fintech service that makes spending higher sums more presently available to customers would certainly be beneficial to a company in that situation. As previously stated, brand partnerships are deeply strategic!

But there is also more nuance to be gathered from the collaboration, such as Deliveroo’s recent foray into offering grocery delivery on their platform. Groceries positively benefit the customer over a longer period than a one-off takeaway meal, and this may give the brand collaboration extra legitimacy.

Could takeaway food be serving as a loss leader in this incorporation of BNPL, with the bigger picture being that those in financially poor standing are now able to purchase a higher surplus of groceries than they would be able to without Klarna’s assistance?

Alex Marsh, Klarna’s head of UK operations, says:

“A healthy debate over BNPL should be encouraged and the fact that it will lead to greater protections for consumers in the form of regulation is very positive. However, it is clearly better for consumers to have more low-cost credit options available to them, which avoid rip-off fees and extortionate interest of traditional credit.”

From this viewpoint, Klarna is sure engages with its customers in a customer centric way. They push for protective regulations and their terms & conditions attempt to be transparent to the fact that it is a credit product and what usage of it entails.

Just because BNPL products can present danger to the customer, it doesn't have to be that way forever, and Klarna seem to heavily push for that possibility! Alex also states that their default rate is lower than ever at the time of the Deliveroo integration, as over ninety-nine percent of customers pay Klarna back.

So, Klarna and Deliveroo’s collaboration does have the potential to provide deep value and a level of autonomy to the customer in the pursuit of customer centricity.    

The value that stems from this partnership goes deeper than merely being profit-focused, as both companies attempt to put the customer’s best interests at heart. Carlo Mocci, Chief Business Officer of Deliveroo UK and Ireland, states that “Millions of people are already choosing Klarna and we’re giving customers more choice and more flexibility with a safe, secure way to pay online.”

Depending on your viewpoint, this move can be seen as either a helping hand or a slap in the face during this cost-of-living crisis. There is some genuine worth in letting the customer take the reins on their purchasing journey and allowing more freedom whilst still providing precautionary guardrails for them, but this still doesn’t stop the premise of getting a McDonald’s on credit from feeling slightly ridiculous at best and financially dangerous at worst!

‍