Buy now pay later fintech Klarna will soon begin charging UK customers for late payments.
From 16 March, the Sweden-based fintech will charge customers £5 for late payments after a seven-day grace period and at least four reminders have been sent.
Klarna will also introduce a feature that automatically takes money from a customer’s account, a recovery programme to support those in arrears, and a financial awareness test that customers can take to have their late fees waived in the first six weeks after the fees are introduced.
The fintech already charges late payment fees in other countries, including the Netherlands and Belgium, where they have improved on-time payments by 20%, Klarna said.
Klarna also claim 99% of customers pay back their loans, thanks to its credit checks.
Alex Marsh, head of Klarna UK, said: “Not charging fees feels customer-friendly, but we’re worried it drives the wrong behaviour and our data now shows that a total absence of late fees actually leads to less favourable outcomes for customers: with less reason to pay on time, customers are more likely to fall behind.
“We’ve concluded that having no fees is not in the best interest of our customers, but we don’t want to rely on fees or charge extortionate amounts like traditional banks who monetise the misery of customers who fall behind.”
James Daley, managing director at Fairer Finance, commented: “Used responsibly, late fees provide an important deterrent as well as a reminder that buy now pay later is a form of credit and needs to be taken seriously as a loan.
“It’s of course important that late fees are fair and reasonable, and don’t become an income stream for credit providers, and it’s encouraging to see that Klarna intends to provide additional support for those who fall behind.”