Crafty Klarna card bites savvy student

Fintech is a jazzy name for innovation in ways of providing you with financial services. It usually involves a mobile phone, which should never be involved in anything valuable to you, because of the ease with which ne’er-do-wells can run off with your phone number via a SIM swap. But it doesn’t have to. The trouble is in the word innovation. A lot of innovation is put into parting you from your money. It began with Access being your flexible friend, helping out Money when you run out of month. The song’s still the same after 30 years, but innovation is there to riff on the tune.

The problem is that innovation means that your usual spidey sense for scams or bad outcomes doesn’t work. Take Klarna, f’rinstance. Classic piece of fintech, it’s designed to reduce friction in spending for the young. I’ve already had a grouse about Klarna this time last year in the YOLO train-wreck post, and now there’s this story about a young lady who has only just discovered the impact of Klarna on her credit score.

Our Klarna victim

Your grizzled scrivener has a sneaking admiration for Erin, because at 21 she is keeping an eye on her credit score and seems to be managing her general finances with a competence that my younger self failed to achieve. I had to chase earning more to assuage the leakage from my pay packet into things like beer, music and high living. OTOH my younger self was still not so far from the principles my parents had instilled

Don’t spend more than you earn, son, and if you have to do it, only for non-wasting assets. Do not borrow money for consumption

Klarna seems to be a specific case of a new class of fintech, basically designed to part the poor from their money, by salami-slicing the sticker shock over time. It comes with instagram-friendly puffery but the basic premise is that £100 sounds high, so make it four lots of £25. It is absolutely true that it’s easier to pay off four lots of £25 from four pay packets than one lot of £100.

Always pay cash for your thneeds

What you must not do, however, is to then go and do that another three times that month, thinking to yourself it’s only £25, I can easily manage that.  Because four lots of £25 is just as tough as one lot of £100, but now you’re stuck doing that for four months rather than one. This is the fundamental scam behind all these slice-it-and-dice-it buy-now-pay-later schemes, they’re trying to get you to spend more.

The rule is simple. Always pay cash for thneeds. What is a thneed? The Lorax had this taped way back in the 1970s. It’s something that you think you need, but the subtext is you don’t really. And it destroys the environment in some way. Fits fast fashion perfectly.

In the personal finance world we call these Wants, as opposed to Needs. There’s nothing inherently wrong with Wants, they make life a bit more interesting and colourful. But you should never borrow to buy Wants. Pay cash. Or use a credit card but pay it off at the end of the month.

If you can buy it with Klarna, it’s a Thneed. You can’t buy food, or toilet bleach with Klarna. Take a butcher’s hook at Klarna’s Instagram. It’s lifestyle, not substance. Strapline

The Pay later people. Highlighting UK retailers smoooth enough to offer Klarna.
Shop our Instagram here

For God’s sake don’t borrow to buy shit like that. If you have money left over at the end of the month, fine. Head on over to MSE’s Demotivator first, however, to find out how many weeks you have to work a year to buy this garbage.

The trouble with Klarna is it’s a ragtag mix of different products

Pay in full in 30 days? It’s a charge card. Pay in 3 instalments? It’s a personal loan application, but for a pissy small amount. Worse still, use the instalment procedure often, and you look like a deadbeat trying to get loan after loan after loan, which means any self-respecting financial institution is going to be very wary of lending you money. If you’re going to take on a hard credit search, then borrow a decent amount of money in the thousands, don’t piddle about with £100 here and there.

Sure, you don’t pay interest if you pay over three months. But you hurt your chances of getting a loan, credit card or mortgage. Here’s a radical idea. Save up for your thneeds before you buy them. There are things in life you do have to borrow money for, and they are important enough (housing, a buffer against losing your job etc). Don’t screw your chances of getting to borrow when you need to for saving a couple of month’ interest on your thneeds. If you must buy your thneeds before you have the money use a credit card, preferably just after you’ve paid off the balance. You get a month and a half of interest-free credit if you pay it off, and if you don’t, then at least it doesn’t crap on your credit score.

Klarna is the fintech version of your grandmother’s catalogue shopping

Back in the day there used to be catalogues of consumer crap and thneeds and clothes delivered to working-class neighbourhoods. These advertised some ghastly object, say for £50. It wouldn’t say this was £50, it would say that this was 50p a week over three years. Their hope was to reduce the sticker shock so people would think that’s only 50p, I can afford that for a while, let’s have it. Then they get to pay nearly £80 over the three years. Klarna is using that sort of principle. It’s not quite Brighthouse, which is the online version of the catalogue scam.

Fintech credit is bad, but fintech isn’t inherently bad.

New ways of borrowing money are bad for your wealth IMO. There are established ways of borrowing money: mortgages, bank loans and credit cards. We are used to them and they are reasonably regulated. We don’t need new ways of borrowing money in funny ways, particularly for Wants.

However, some sorts of fintech are good IMO. I use Starling Bank. Starling means I can buy things in foreign currencies without eating the stupid fees that old-tech banks charge, just because they can. The ability to switch off the card and re-enable it has some value, as does the immediate itemisation of card purchases including contactless. All good stuff. Fintech is doing some good stuff with investing, reducing transaction costs.

If you can’t Pay Now, then Don’t Pay

Klarna. The Pay later people.

The red flag is right up there. Pay Later is always bad for your financial health in some way. If your current self can’t pay now, what do you know about your future self that means they can pay later? Particularly when your future self is only a month away? When was the last time you saw a mortgage advertised as Pay Later? That’s what it is, but at least it’s on an appreciating asset. Nothing you can buy with Klarna is an asset, it’s for consumables. Pay cash for that sort of thing, or use a credit or debit card and pay it off in full. If you can’t do that you can’t afford it, and your next-month-older-self won’t be able to afford it any better than your current skint self. Buy your consumer shit just before the end of the month, with cash or a debit card 😉 Then you know you can afford it. Want to buy a consumable that’s dearer than a month’s spare cash? Here’s a radical idea. Save up for it beforehand. No spare cash? Don’t buy it.

Klarna. Just Say No. Erin can buy several sizes, try them on and return the ones that don’t fit using a regular credit card. If she’s buying enough that five of each size is maxing her credit card limit then perhaps she needs to think about her fashion habit, but she’s probably OK.

For sure if she screws up she will end up paying interest, but it sounds like she’s organised enough to avoid that – just don’t buy fashion in the week before her statement is produced, or have two credit cards, one with a statement date at the beginning of the month and one in the middle, and use whichever one has been billed most recently. And make sure to pay them off. In full.

23 thoughts on “Crafty Klarna card bites savvy student”

  1. Great post and I agree with you 100%. These days you need to have your phone with you all the time – gmail has started demanding that I have it to verify my identity when I use my laptop at home! My phone could be anywhere!

    I think that anything which makes it easier for you to spend money is a bad thing.
    Being able to spread the cost (and headache) of discretionary spending like this will appeal to some people – maybe if you get paid irregularly for example – but it’s probably not a good idea.
    There is a need for this type of thing – helping people buy things is nothing new.
    As with much of Fintech it is just reinventing the wheel but on a phone.

    Liked by 1 person

    1. > if you get paid irregularly

      you need a cash float of essential expenses for the longest expected period of drawdown 😉 BTDT as living from investments – I carried three years as most bear markets are on the way up after that. Fortunately I didn’t have to live it…

      Like

  2. Great post – brings back memories of 1980’s Gratten catalogue shopping !

    Deferred gratification is difficult for many – and it was more difficult for my younger self – but key to managing money and building wealth.

    Am currently saving for a basement conversion – it may be a few years ahead depending on how much of my savings I am prepared to use – but it will feel good to not go in debt for it.

    Like

    1. I am amazed to discover Grattan is still in business! Their strapline is – guess – “buy now, pay later”. Personally I’d change that to 40 years of fleecing British punters and still going strong

      Oddly enough the basement conversion could be regarded as an increase in the value of a non-wasting asset in some quarters, thought not usually for the entire cost of the remodelling.

      Liked by 3 people

    2. Up North it was either Littlewoods or saving sufficient Embassy coupons to get something from their catalogue. Us kids were often given they job of counting coupons which were ofter exchanged as currency for small domestic jobs like trouser alteration.

      Liked by 1 person

  3. A few days ago I had my bank send me a one time passcode via text to confirm a cash transfer. Now the passcode was clearly visible from the message summary that is displayed *prior* to unlocking the phone. Security breach? I’ve since tightened that up – but still a bit of a shocker??

    Since getting a new phone with enough space for some more apps, I have taken the plunge on going to the dark-side of smartphone finance, i.e. I’ve installed banking apps and set up google pay. I do now feel like a millenial hipster when I pay contactless by phone.

    Also, since moving house, I can now no longer control my central heating system without wifi and the appropriate app!

    The times, they are a’changing..

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    1. > I can now no longer control my central heating system without wifi and the appropriate app!

      Oy vey. And I have a leisure battery and small inverter to backfeed the power (having isolated main intake, natch) and be able to power the central heating pump and boiler system control in the event of a power cut. Having to back up t’internet and possibly the mobile network isn’t something I’d want to add to the mix. I have experienced power cuts, but can’t ever remember a gas cut, well, since Ted Heath’s time that is…

      > displayed *prior* to unlocking the phone

      If it’s convenient, it ain’t secure. If it’s secure, it ain’t convenient.

      Like

      1. My Wi-Fi super dooper all-in-one thermostat and boiler control system can’t communicate with my boiler because the walls of my Edwardian house are too thick. So I carry the gizmo to various parts of the kitchen, utilty room and larder room until it moderates the temperature in the rooms we are actually living in!

        Fortunately, I have a wood burning stove that heats the house to a lovely benign (for my better half) temperature.

        Modern technology, bah.

        Liked by 1 person

    2. > I do now feel like a millenial hipster when I pay contactless by phone.

      A cynical Ermine was driving on the way back from some green part of this septic isle when I heard about Three going titsup followed by some of those millennial hipsters grizzling that their card stored on their phones didn’t work s they were financially embarrassed at the till. To which I first though hah-bloody-hah and secondly wondered how the heck is that a thing?

      Liked by 1 person

      1. OK so after a large-ish transfer of cash yesterday from one bank to another via an app on my phone the two factor authentication code is still sent as a text to the phone. Hows that improving security? Or am I missing something? Doesn’t two factor imply security codes on two separate things?

        Liked by 1 person

      2. > two factor imply security codes on two separate things?

        It could imply two different aspects on one thing. Take the Starling app I have. This uses the fingerprint sensor to open the app (even if the phone is already in a mode set to open other apps). Having them send a SMS might count, depends if the app also uses the phone #, mine is set to wifi by default. If the app uses the phone # then no, it’s not two factor. But the phone # and the fingerprint is.

        Personally, I just use the card. The phone doesn’t come with me so much. I don’t need a phone most of the time and where I do I have a plastic candy-bar dual-sim phone which knocks the socks off my smartphone for RF performance. And if some toe-rag thieves it I am £12 capital cost down plus PAYG credit on two SIMS. But obvs I can’t Facetweet my lunch etc. I don’t run apps for any accounts that have a credit facility, Starling is the only one, and it’s a debit card.

        2FA is a tough one – I think it’s just banks doing a CYA job. It’s not about making you more secure, it’s about them being able to disclaim responsibility 😦

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  4. I’ve got my own beef with klarna but this one from the BBC doesn’t fly.
    Presumably our student is living off a student loan yet using credit cards (most likely just paying the minimum monthly payment) and has a leased car / car loan *. No red PF flags there?

    Furthermore savvy enough to be concerned about monitoring their credit score but not savvy enough to know the credit score is made up marketing bollocks?
    The key bit is “financial account information status” and “search history”. Both of which would have been lit up like Christmas trees.

    As for not realising a few missed payments on a loan would affect your ability to take out more credit ? Ouch !
    I actually think Klarna have done her a favour, as she “probably shouldn’t be buying more”.

    The BBC could have done a better job teasing out how much credit is extended to a young adult and exposing Klana’s “soft” credit check bullshitery.

    *Assumption from automatic monthly payment setup

    Liked by 1 person

    1. You’re a hard taskmaster 😉 I gave Erin a pass on those because a) I read “monthly payments set up to pay off credit card bills” as settling them in full, because otherwise that’s pay down CC bills, and b) my 26-year old self bought my first car with a bank loan, my one and only bank loan ever.

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  5. > have two credit cards, one with a statement date at the beginning of the month and one in the middle, and use whichever one has been billed most recently. And make sure to pay them off. In full.

    My parents used to do this back in the last century.

    Liked by 2 people

  6. And everywhere billboards proclaim Contactless is the “Safe” way to pay. How can not entering a PIN be safer than entering one? Advertising standards should be all over this nonsense. But supposed “convenience” is all. The latest guff from my bank says its ideal for “a coffee or a magazine” – in that case make the limit £5 not £30.

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    1. Thats possibly an easy one Reggie – very easy to swipe a PIN in a crowded pub, then nick wallet and off to the ATM. I think thats what they call an attack vector. Contactless for small amounts protects the PIN that could prevent theft of larger amounts? Clearly the limit has to be related to your drinking habits i.e. how big a round you typically get stung for. £5 not much of a round these days. I paid the most I ever paid for beer last Friday – £5.60 for 2/3 pint. Eye-watering.

      Liked by 1 person

  7. I’m afraid it’s getting even worse, just in time for Christmas. Amazon has devised a way to rope you into the 0% interest loan without even subjecting you to a credit check…! Try buying something pricey and it will show you the “5 monthly payments” cost, accomplished by charging your credit card once a month until it’s paid for. I fear that in the run-up to Christmas and the normal “I’m broke in January” sentiment, people are going to do massive damage to themselves.

    Liked by 1 person

    1. That’s quite deliciously evil, because for the sorts that it will appeal to it isn’t really a 0% loan. Amazon get the sale, and a charge on the credit card. Which will be overspent on anyway at Christmas, because, well, think of the children with their wish lists for Santa and all that.

      So come January, February, March, April, May and that 0% interest rate will in fact be 20%, and that’ll be on all purchases. But in a smart twist, it won’t be Amazon that is the evil usurer, it will be the big bad credit card firms, and His Jeffness will be able to show a clean pair of hands. That’s inspired!

      Like

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