The British online-food delivery service Deliveroo recently announced that it was partnering with Klarna, the Swedish Fintech brand, in order to roll out a buy now, pay later (BNPL) scheme, allowing consumers to get their takeaways and groceries with credit rather than paying directly.
Users of the Deliveroo app will now be offered this extra payment option at the checkout stage of purchasing and can opt to pay the total amount there and then, to pay in full within 30 days, or in installments over 60 days. In order to use this service, the total bill must exceed £30.
Carlo Mocci, chief business officer for the UK and Ireland at Deliveroo explained that the scheme is designed to give “customers more choice and more flexibility with a safe, secure way to pay online.” Over at Klarna, chief commercial officer David Sykes added that “Deliveroo provides a great service to households, and that’s why we’re excited to offer our alternative payment options to Deliveroo customers,”
But the announcement of the new scheme was quickly met with criticism from finance experts and economists. The popular UK consumer rights expert Martin Lewis shot down the new partnership in a tweet that pointed out that BNPL schemes are unregulated in the UK and that offering them for takeaways is irresponsible.
Personal finance expert, Tara Flynn from consumer rights organization Choosewisely.co.uk also added their voice to the chorus of those criticizing the partnership, commenting:
“If you’re considering buying your takeaway now and paying for it later…don’t. Getting yourself into debt over a meal that’s gone in 15 minutes isn’t worth it. Having fast food delivered should be considered a treat for now and again, and if you can’t afford to do it, you shouldn’t…I think it’s irresponsible for Deliveroo to offer this as an option, and need to seriously reconsider this move ASAP"
Andy Duggan, from the marketing agency, Hitsuzendo was also critical of the announcement. “It’s a step too far because there’s never any financial education to go alongside this. All brands working with Deliveroo now need to ask themselves: are they part of a problem that’s going to explode in the future.”
In response, Klarna has clarified that they do not charge interest or fees when the total amount of credit is paid in full on time and that this is not the main that their business makes revenue. In their own words “You will only ever owe the cost of your original purchase…our retailers pay us a transaction fee each and every time you shop on their website or in-store with Klarna.”
According to them, its users “have extremely low default rates, well below 1%” and “40% of full repayments are made before the due date.”
They clarified their position stating that according to their research “1 in 5 Brits pay for takeaways on a credit card, and 1 in 7 have used an overdraft…We believe you should only pay for what you buy with no interest or fees, and it’s never been more important for consumers to have access to payment options which help them stay in control of their finances,”
This wouldn’t be the first time that consumer groups have sounded the alarm over the growth of BNPL schemes and brands like Klarna — pointing out, like Martin Lewis, that the industry is unregulated and that despite appearing to be harmless “customers are often unaware of the risks attached to using this payment method.”
Consumer Rights organization Which? Conducted research on the sector and found that there is often “little to no information provided on the danger of falling into debt if repayments aren’t made.” and that for many consumers, BNPL schemes are not thought of as a type of credit.
Sam Richardson, deputy editor at Which? Money explained that “With more companies offering BNPL at the checkout – sometimes offering multiple options without explaining the differences – it makes the need for regulation of the market even more important.”
Klarna’s own brand deftly positions itself as offering consumers simplicity and freedom when making their purchasing decisions and while this is certainly the case, the brand needs to incorporate an element of education into its offering to protect vulnerable users.
Of course, many consumers already purchase their takeaways with credit, but if consumers don’t actually feel they’re purchasing their next “cheeky Nandos” with borrowed funds when using a BNPL provider, then there’s clearly a breakdown in communication that needs to be addressed. If Klarna wants to be a responsible brand it should help consumers understand exactly the types of services that it offers and provide resources for those who might be uninformed.
In the UK, it is not uncommon for gambling brands to accompany their ads with gambling safety messages such as “when the fun stops, stop” and provide links to helplines for vulnerable consumers where they can access assistance or advice. A similar strategy might be necessary here for BNPL brands, at least until regulation forces their hand.
Main image credit: Adam Rhodes