Stripe partners with Klarna for buy now pay later option
By Matt Collins Article may include affiliate links
The partnership means that businesses who use Stripe to process payments will have the option of offering Klarna’s payment plan which lets customers pay for purchases in four equal monthly interest free payments.
The integration will be available to customers in Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain, Sweden, United Kingdom and United States. Stripe also has support for Afterpay and Clearpay in Australia, Canada, New Zealand, United Kingdom and the United States as well as Affirm in the U.S. only.
BNPL is emerging as a hot space in ecommerce. Proponents say it helps increase conversions and lets customers buy more expensive items without incurring interest.
Most BNPL services take a cut of the total purchase from the merchant so there are no fees to the consumer. Also in most cases, merchants get the full value of the purchase, less fees, upfront, so it makes accounting easier and makes the BNPL provider assume more of the risk.
Critics of BNPL say that it can encourage irresponsible spending and purchases that customers can’t really afford.
Most stores that accept BNPL will advertise the monthly payment, which is lower than the total, prominently, which is good for marketing and encouraging checkouts, but could psychologically make consumers buy things they can’t actually afford.
Some worry that the low monthly fees listed on shopping sites also make it harder for customers who do a lot of online shopping for high ticket items to realize just how much they will owe for all their purchases each month.
Because charges are often billed to credit cards anyway, customers who can’t afford to pay off the balance in full on those accounts each month end up paying high interest rates, though that’s also been a widespread critique of the credit industry as a whole for years.
The U.K. has begun the process of exploring ways these types of services should be regulated.
The idea of BNPL is hardly new — it’s existed in various forms for decades, including on home shopping TV networks and mail order companies, department stores and other businesses with high value items such as furniture and mattresses.
Many of these businesses often emphasize that they offer no interest for a set period of time, but don’t make it quite as clear that there is a minimum monthly payment required. In many cases, customers who miss even a single payment lose the zero interest offer and can be charged “back” interest on the entire purchase price.
Most BNPL options use a “soft” or “hat tip” credit check, meaning applying for a payment plan doesn’t affect credit scores.
The space is also crowded — with Square acquiring Affirm for $29 billion. Other players include PayPal, which bought Japanese service Paidy for $2.7 billion, Zip (formerly Quadpay) and others.
Affirm has a partnership with Shopify to power the company’s Shop Pay Installments feature that combines an accelerated checkout experience with the BNPL feature.
BNPL is essentially an unsecured loan and given that most of the companies give merchants the full value of the purchase up front, less fees, many of these companies are likely holding millions of dollars in outstanding payments at any one time.
They are somewhat less risky, however, since customers still have to provide a valid payment method when setting up a payment plan and BNPL fintech providers can automate payment processing to charge payment methods each month in most cases rather than having to chase after customers for money, send out bills or process incoming checks or other payments.
The biggest risk is if the payment method becomes invalid because the account it’s linked to either is closed, canceled or hits a credit or other limit that means the charge won’t go through each month. In these cases, most BNPL companies will try again later. If a second attempt fails, many carry over the outstanding balance to the next month.
Ultimately, however, unpaid balances can go to collections.
Most BNPL companies, like other financial companies, have implemented programs that offer payment limited forbearance or extended time to pay due to financial situations hit hard by the coronavirus pandemic.