The Financial Conduct Authority (FCA) which regulates the financial services industry in the UK, has authorised Klarna to offer regulated payments and credit services.
Who is Klarna?
Klarna Bank AB is a fully licensed Swedish Bank. It currently operates under the FCA’s Temporary Permissions Regime (TPR). As the TPR is due to expire on 31 December 2023, Klarna has moved to a new entity, Klarna Financial Services UK.
Which Klarna Products Are Covered Under the FCA Approval?
The products included are:
- Klarna term loan
- Klarna card
- One time card
- In-store card
- Open banking-based payment services.
Source: Klarna
What Does FCA Approval Mean for Klarna?
FCA approval means Klarna is subject to prudential supervision and regulatory controls related to its products and services (that are in scope) to protect you as a UK consumer.
Note that the approval does not cover ‘Buy Now Pay Later’ (BNPL) products.
What are BNPL products and how do they work?
Buy Now, Pay Later (BNPL) is a short-term interest-free method of financing. You are entering into a credit agreement with a BNPL lender to borrow money from it.
As more struggle with the cost of living crisis, it’s essential to understand what you agree to once you sign up with a BNPL lender. FCA research shows that 14 million people used BNPL at least once in the 6 months to January 2023.
Frequent users (defined as using BNPL 10 or more times) are also more likely to be in financial difficulty. These users were more than 4 times as likely as other consumers to have missed a payment on a bill or credit card in 3 of the last 6 months.
The Financial Conduct Authority (FCA)
When you buy a product or service, you don’t pay the full amount upfront. You need to sign up with the BNPL provider and agree to their terms and conditions (T&Cs). Ensure you read and fully understand the T&Cs before signing up.
The BNPL pays the retailer upfront on your behalf. You then pay the BNPL provider. This means you can spread the cost of the purchase over a short period of time, usually weeks or months.
Other providers of BNPL products include Clearpay, Laybuy and Openpay.
What are the benefits of BNPL products?
- BNPL is available in-store and online
- Interest-free and fee-free purchases, as long as the payments are made on time and in full.
- BNPL providers will leave a soft credit check on your credit file except for Monzo Flex and Instalments by Barclays which leave hard credit checks.
- Customers can spread the purchase cost over time reducing pressure to pay upfront which offers greater flexibility.
When BNPL Payments will be Taken (for 0% interest repayment BNPL products)
| Provider | How Many Payments? | Frequency | When Is the Last Payment? |
| Klarna | 3 | At purchase, then every 30 days | 60 days after purchase |
| Clearpay | 4 | At purchase, then every two weeks | Six weeks after purchase |
| Laybuy | 6 | At purchase, then weekly | Five weeks after purchase |
| Paypal – Pay in 3 | 3 | At purchase, then monthly | Two months after purchase |
What are the risks of BNPL products?
- Overspending: You may be tempted to buy more than you can afford or need.
- BNPL is unregulated. You will not have any protection if something goes awry with your BNPL purchase.
- Debt: If you have existing credit card debt or consumer loans, you may struggle to repay your BNPL debts. If you don’t repay on time or in full, you may incur late fees, interest charges, or harm your credit score.
BNPL Late Fees Charged
| BNPL Provider | Late Fee Charged | Other Information |
| Clearpay | £6 | If you haven’t paid after 7 days, you will incur an additional fee of £6. Late fees are capped at either £24 or 25% of the order value, whichever is lower. E.g., for a £40 item, the maximum amount of late fees you could incur is £10 |
| Laybuy | £6 | This fee can be charged up to four times per purchase. Therefore, the maximum late fee per purchase is £24. |
| Klarna | £5 | If you miss a payment, you’ll have a 7-day grace period to pay before a late fee is charged. The standard fee will be £5 or 25% of your order value, whichever is less. You will only be charged a maximum of two late fees per order, so the maximum fee is £10 per purchase. |
| Paypal ‘Pay in 3’ | None | No late fees since 2021 |
In Summary
Although you may have seen the headlines that the FCA approved Klarna. You must be aware that it does not cover ‘Buy Now Pay Later’ (BNPL) products.
BNPL can provide financial flexibility if used sensibly. However, as with all credit, you need to be careful and not take on credit you can’t afford to pay back on time and in full.
Before using BNPL, consider whether you can save up to buy the product or service or use a regulated form of credit that gives you, the consumer, protection.
In the run-up to Christmas especially, take careful consideration before piling up debt whether that be credit cards, consumer loans or BNPL.
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