There’s nothing like instant gratification and urging people to buy things they cannot afford. Yet, it’s certainly the tactic many new startups are using to get the younger generation into using credit. Klarna is one of the larger new websites that does just that. They get over one million visitors each day and sell beauty products and clothing to young people.
The difference between Klarna and Amazon or any other ecommerce website is that you don’t have to buy the products right away. They offer several options that include paying for your purchase on the spot or spreading out your payments a bit. Once the product has shipped, you have 30 days to use the product and will be asked to pay for it after those 30 days have expired.
Once you’re ready to check out with the items you want to try, you only have to provide your name, address, and even date of birth. The site will attempt to make a soft credit check on you to see what your credit score is and whether you can be trusted to essentially borrow the products to see if you like them. If it’s determined that you’re okay, you then have the option to choose your payment plan.
The smaller items can be paid over interest-free payments, but the larger items will require more time. They will try to get you into a 36-month payment plan with interest included. The idea is to allow younger people to buy the things they want without being forced to pay for it right away. They see the payment options and still get instant gratification rather than waiting to afford it.
A Different Way of Doing Business Using Credit
The concept of buying now and paying for that item later isn’t exactly new. Credit cards allow for that option all the time. The difference is, there are clear advantages websites like Klarna has and it may change the credit industry. They don’t start off by charging interest and fees. You don’t even have to sign up or register an account with them.
Instead, the vendors who choose to sell products on the website do have to pay a transaction fee and a tiny bit of the sale price. Rather than passing that price to the customer (which may be built into the price anyway), Klarna charges the vendor. This allows them to take more risk in trusting the customer to choose the payment option that works for them.
The website even claims this helps them increase the number of orders they get and people actually spend more money. The checkout process is simple and all the additional fees are put on the vendor. Gymshark started using this same model and saw an immediate jump in the number of sales and even had customers buying more products. The order value increased by 33% by passing the fees on to the vendors.
The downside with this platform is that it’s more likely to trigger buyer’s remorse. You’re ‘buying’ a lot of products because you don’t have to worry about payment right away. But just like student loans, it’s fine until you have to spend the next few months paying off all the products you probably already used up or sits in your closet. The joy of the purchase can wear off and if the customer doesn’t pay, it will be reported to the credit bureau and hurt your credit.
