How Klarna is Hooking Millennial Women on Short-Term Debt
‘Klarna is just debt dressed up in a millennial-pink wrapper’
In Sweden, the average woman will earn 96% of what a man makes for the same job. In the UK, a woman will earn almost 10% less per every hour a man works. While these differences may not feel too significant, a large amount of female debt has been piling up for years, resulting from a lack of financial education, female-focused advertising, and loan tools marketed as budgeting support. All of the keywords the founders of Klarna use to describe their company.
Klarna is a buy now, pay later (BNPL) scheme, with zero interest. Klarna took off in 2005 and is valued at $5.5 billion, with 6 million customers across Britain shopping using the Pay with Klarna button. They highlight ‘no interest, no fees’ in large bouncy letters and reassure that you can complete your payment in 30 days. It’s ‘online shopping freedom’, they say. They also offer consumer financing and installment payments. Consumers are using Klarna so often that it has become the online payment of choice after PayPal.
When we think about budgeting, we often think about spreadsheets with rows and columns detailing where money can be saved and reallocated. However, according to Klarna, budgeting looks like spreading the cost of a $200 dress over the course of 2 months on no-interest. They offer ‘budgeting solutions’ so you don’t have to wait until payday.
The payment provider partners with retailers such as ASOS and Nike to handle the payment process on their behalf. They offer the customer a choice of payment method and Klarna charges the retail store a fee depending on the payment method chosen. Approval to use the pay-day loan service depends on a soft credit check, which does not leave a footprint on your record.
Klarna’s solution is simple and easy, but despite Klarna meaning ‘clear’ in Swedish, they aren’t that clear when it comes to the finer details of repayment.
Failing to repay using any of the three payment methods Klarna offers, may cause serious harm to your credit score. But again, they’re not so clear about these rules because it’s all hidden deep within their T&C’s.
On Klarna’s ‘mythbuster’ blog they said: “If the debt remains unpaid after several months despite multiple payment reminders being sent, the account will be classed as in arrears and then passed to a debt collection agency.”
Unlike credit card companies, Klarna and other buy now, pay later (BNPL) schemes do not have the ability to improve or grow your credit score. However once your name can be traced to a collector your credit score may drop substantially. The exact extent of the harm caused will depend on how high your score was initially and how much you owe. The higher these figures, the greater the risk.
The premise is not a bad one at first glance; you’re expanding credit to people who may not have had it before and may not want to go through the hassle of getting a credit card. So is it being done ethically or are companies like Klarna focusing on something bigger?
In 2016, Klarna hired a new CMO, David Sandstrom, who turned the company’s branding around in a new ‘energetic’ campaign. The new marketing campaign featured a bright-coloured palette, and beautiful girls reflected in fancy mirrors, the likes of Snoop Dog and comedian Celeste Barber appearing in their ads. The female millennial aesthetic, some might call it.
The aim of the campaign was to make Klarna ‘exciting’. The old blue tones looked too much like they were in the financial sector, and their target audiences weren’t buying it. However, after the rebranding, Klarna is now featured on 4500 UK online shopping websites including ASOS and Nike.
One of the ads in particular showcases how Klarna may be exploiting the benefits of their service to manipulate more vulnerable customers, specifically younger women, into using their services. The opening image reveals a man and woman sitting in a bar, a soft pink subtitle unveils the campaign’s message: ‘Get what you love’.
The girl buys a colourful ring-cushion veiled in pearls, places a luxurious diamond ring on top and dashes a glance his way, as the plate glides towards the man. The man notices her and is impressed. He picks up the ring and heads over her way. The shot cuts and he is placing the ring on her wedding finger. The video is captioned: ‘Get who, or what you want’.
This is just one of the ads with blatant sexist connotations encouraging women to purchase items to bring attention to themselves. Veiled under the liberty of choice as a woman, this is a classic form of female-centric advertising promoting love & validation after the purchase of a product.
The slick branding masks the predatory nature of the business. It’s not a budgeting tool like they market themselves to be because they target young women who are not financially stable, instead facilitating a short-term financial mindset and normalizing loans and debt.
According to Business Insider the average millennial is already financially behind thanks to student debt, costs of living and the financial downturns. A CompareCards survey found that on average, millennials with debt expect to be debt-free at age 49. Of women in debt, they found that 25% think they’ll never be debt-free, compared to 19% of men. And women , on average, also graduate with more student debt than men.
The average millennial woman (20–34) brings in a household income of $39,000 per year. Of these women, 48% say they have three months’ worth of emergency savings, while almost 70% of men do. And short-term debt in the form of a monthly bill from Klarna is not budgeting for a stable future.
If this demographic is already struggling with managing personal loans and is insecure about ever being debt-free, then why give them more reasons to bury their financial futures? The fact that companies like Klarna make their money from the fees that retailers are paying, signals that the real benefactors in this equation are retailers after all, not the women buying the clothes.
If these companies did not market themselves to younger women, the temptation to spend $40/month paying off a dress she couldn’t afford would not be so strong, and those $40 could be going into a savings account.
The temptation of Klarna is the short-term gain. They place their service near products their target audiences drool over and almost like a bell to a dog, customers click Pay with Klarna without thinking about the long-term implications.
While Klarna’s solution is certainly in demand, it is unethical to reward companies for seeking out vulnerable demographics for the sake of a fatter valuation. Klarna is not a budgeting tool and is robbing women in their twenties the potential for sustainable financial growth, normalising the mindset of short-term debt as an accessible way to live a life beyond your means.
Thanks to Compound Writing for invaluable feedback.
