Klarna CEO Blasts Buy Now, Pay Later Fees, Labels Them Extortion Schemes
The CEO of a global payments group has slammed the huge fees rival buy now, pay later (BNPL) operators charge retailers, describing them as an “extortion scheme”.
Sebastian Siemiatkowski, who runs Klarna, warns regulators will soon become heavily involved in Australia’s booming BNPL industry due to the “unsustainable” merchant fees.
Speaking to The Australian, Siemiatkowski said he is dismayed by the average instalment payment merchant fees of 4.1% charged by rivals such as Afterpay and Zip.
“I’m kind of a little bit surprised that this isn’t a bigger topic in Australia … the largest player locally is charging 4.1 per cent on average in merchant fees. I mean that is not sustainable,” Siemiatkowski said.
“That is what we would refer to as not really a payment scheme — that’s an extortion scheme, because you are charging that high on the merchant side and then you are using that to further incentivise your consumers.”
According to Siemiatkowski, Klarna charges merchants an average rate of 2.1%.
Klarna entered the Australian market earlier this year via a partnership with Commonwealth bank, which holds a $408m stake in the company.
Throughout 2020, Klarna – worth $US5.5bn – has signed up 400,000 Aussies and has 500 merchants and retailers integrated in its payments system.
Siemiatkowski’s criticism at fellow BNPL operators comes as the sector faces growing criticism with calls for it to be controlled with more tough regulations.
There is a spotlight on digital payment apps with analysts arguing it causes financial stress for vulnerable customers.
In 2018, Afterpay reported that it earned 24.4 %of its income from late fees and 75.6% from merchant fees.
Customers who miss instalments are subject to a $10 penalty for the first fortnightly payment, then a further $7 fee if it is not paid after one week. Each transaction carries a maximum fee of $68.
There are calls for the Australian government to broaden credit regulations so it covers the BNPL sector. As it stands, BNPL operators fall outside of ASIC’s regulatory power due to a loophole.