Under lockdown, Generation X turning ‘to buy now pay later’, says Klarna

Swedish fintech Klarna completely revolutionised the consumer credit space.  

Since its launch all the way back in 2005, Klarna has grown to be one of the highest valued fintechs in Europe valued at $5.5bn, tied with Revolut and Checkout.com.

The fintech is active in 17 countries across the world, has 85 million users worldwide, including 8.5m active consumers in the UK alone, and has more than 205,000 retailers, 6,500 of which are in the UK.  

And, just like many other fintechs, lockdown has had a positive effect on Klarna’s business.  

AltFi caught up with Alex Marsh, senior analytics director at Klarna UK, who was previously the managing director at Close Brothers Retail Finance, a firm acquired by Klarna in 2018, to see just how well the fintech was faring.    

On your bike  

Certain sectors have been more popular than others for Klarna customers.  

Under lockdown, home and garden purchases went up 196 per cent as more and more people turned to gardening to pass the time in quarantine.  

Similarly, Marsh told AltFi: “We’ve seen huge increases in consumers using finances for products such as sofas and other furniture and garden products.”  

“But cycling has seen a massive jump. If you try to order a bike now, you’ll be getting it in mid-2021 at this rate!”  

Throughout the Covid-19 crisis, the average spend through Klarna’s buy-now-pay-later service has remained constant, sitting at around £70, the same level it was at before the pandemic.  

Unsurprisingly, Klarna also saw a big jump in spending for athleisure and other sportswear, compared to what it would normally see being purchased at this time of year, largely “going out clothes and clothes for holidays,” Marsh told AltFi.  

X marks the spot  

Besides the increase from certain sectors, Marsh told AltFi that the average age of the Klarna customer rose.  

“Our customer base has really broadened out over the last year but, under lockdown, our biggest transactions numbers actually come from Gen X, which is 40 to 54-year olds,” a fact that Marsh laughs at as he begrudgingly admits that he too falls into this age group.  

“Normally, our average customer is a millennial, or a Gen Y, in their 20s, but our average consumer age is now 33,” which can be wholly attributed to older generations taking to online shopping under lockdown.  

When Klarna first started out, particularly in the UK, it was predominantly recognised as a partner to many online fashion brands, something which “just played to the demographics that we naturally saw,” Marsh told AltFi.  

“But now our age is trending upwards and it's great that our products are offered to all age groups and types of customers.”  

For Gen X it seems that they tend to favour Klarna’s financing option for high ticket purchases, compared to Gen Y who prefer the buy-now-pay-later flexibility that Klarna offers.  

Lending locked down under lockdown  

Despite not really being seen as a loan by some, when using Klarna’s services customers are actually taking out small loans, the rate of defaults for which is only 1 per cent.  

In order to maintain its incredibly low default rate, the Swedish fintech chose to tighten its lending criteria under lockdown as a result of the financial uncertainty the UK faced.  

Mash told AltFi: “We have taken steps to tighten our lending strategy because obviously, as one of the downsides to being locked down is that more employees are being furloughed or made redundant.”  

“As a responsible lender, we need to make sure we are making the right decisions. Having 8.5m UK customers means we’re able to see very clear trends from our consumer data.”  

Marsh continued: “There are certain pockets of consumers, grouped by age groups, region, self-employed and employed, where we can see trends in real-time that help improve our decisioning and help us preserve the low level of defaults.”  

Marsh added that when Klarna has a customer in financial difficulty, the fintech has been trying to offer more flexibility, be it via payment holidays or extended payment plans, in light of the coronavirus pandemic.  

Not just a one-trick pony  

As well as being favoured by online retailers and online shoppers alike, consumers can also access Klarna’s financing options in stores as well.  

One of the first stores to receive the Klarna treatment was H&M, where users could use Klarna’s signature buy-now-pay-later option in stores from all the way back in September 2019.   

Marsh told AltFi: “Offering our products in stores has actually been really difficult because it puts a lot of pressure on the store’s staff to understand the products and help customers if they get confused too.”  

“We’ve tried to empower the customers to make these financial decisions without the fear of being declined or not having enough money. We’re trying to remove the barriers placed on certain large ticket items and make them as accessible as they are online; while also making the right decisions as to who’s eligible or not.”  

Klarna’s in-store offering also results in higher purchase values, on average purchase amounts increased by 61 per cent when buying fast fashion, taking the average spend from nearly £73 up to £117.  

Bricks and mortar  

When looking forward at Klarna’s future in the UK and further afield, Marsh sees big expansion plans on the cards.  

“We have big plans to expand into more markets,” Marsh told AltFi, “We have a big focus on Australia and the US at the moment.”  

“The great thing about Klarna is that we’ve proven we can work in lots of countries with very different cultural practices and bring a product to market that actually meets the local needs.”  

Marsh adds that Klarna is slowing down some plans, making sure that the fintech “has a clear view of the health of the economy, local job security, income and how that translates into people’s shopping habits,” before entering new markets or launching new products.  

Despite this, he says that Klarna has “more bricks and mortar shops” set in its sights and making sure that it is offering the right product in the right market.  

So, there you have it, unlike many around it Klarna remains stable and, again, going against other trends, Marsh predicts the fintech could be expanding into “bricks and mortar” as well as online.