Klarna, an international retail bank, payments and shopping platform, recently noted that six out of ten or 60% of credit card users don’t know how much interest they are actually being charged. This, according to the latest YouGov research that was commissioned by Fintech firm Klarna.
As mentioned in the update from Klarna, there was not a single respondent that was able to accurately determine how much a typical credit card purchase could cost after applying interest to the total. This was the case despite credit card firms adhering to relevant disclosure rules/requirements that were specified in the Financial Conduct Authority’s rulebook and despite being regulated.
These findings have led Klarna and Fairer Finance, a consumer-interest agency, to call on the industry to carefully look over disclosure requirements for regulated finance.
Alex Marsh, Head of Klarna UK, stated:
“It is vital that consumers understand the basic terms of their credit agreements, even more so at a time when household budgets are under massive pressure, and credit card companies are charging record-high interest rates.”
James Daley, MD of Fairer Finance, remarked:
“Credit cards are incredibly complex products, with layers of different interest rates and charges. This latest research proves what we’ve long suspected – that the majority of customers struggle to understand exactly what they’re being charged. This situation is made worse by an out of date set of regulations, which force card companies to bombard customers with a range of jargon-filled documents and disclosures during the application process. The Consumer Credit Act and FCA regulations need to be urgently reviewed and replaced with more effective rules that ensure customers are given the information they need, at the right time, and in a format and language that they can understand.”
Klarna worked cooperatively with YouGov to present 2,000 UK consumers with a typical credit card sign-up flow and requested them to determine the total cost, which included interest, of an everyday purchase. And not a single respondent could accurately calculate the amount being charged.
The research further revealed that consumers understand the headline or main terms and conditions of BNPL products better than they do credit cards. After reviewing the Klarna BNPL check-out page, 7 out of 10 respondents stated that it was clearer when they had to repay, and only a quarter (26%) noted that it was clear when they needed to pay a credit card to avoid extra charges.
In another update, it has been revealed that Swedish payments company Klarna Bank AB is looking into securing additional capital via an investment round that could solidify its status as one of Europe’s most valuable startups, according to sources familiar with the matter (and cited by Bloomberg).
The Stockholm-headquartered firm is most likely to attract sovereign wealth and pension funds as new investors, the sources claim. Klarna might be able to attain a valuation of about $50 billion to $60 billion based on initial estimates. However, an exact target has not yet been determined, the sourced revealed.