Both rapper Snoop Dogg and pop star Lady Gaga have advertised Swedish payment service provider Klarna in eye-catching commercials.

The company is one of Europe's fintech grandees with an estimated valuation of more than $45 billion.

No other unlisted company in Europe is more valuable.

Antonia Mannweiler

Editor in Business.

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The hyped company with the pink logo has repeatedly come under criticism in recent years for its success and the idea behind it.

Alongside Affirm and Afterpay, Klarna is one of the world's largest "Buy Now, Pay Later" providers, i.e. "buy today and pay later".

The concept is not new, but has experienced rapid development in recent years.

Both invoice and installment purchases are part of the concept.

Warnings were repeatedly raised that young people in particular could get into debt more quickly via Klarna, also because the effective annual interest rate for installment purchases is comparatively high at 14.79 percent.

Last but not least, short videos of young Klarna users who posted their open claims with the hashtag "#Klarnakrediten" are trending on the Tiktok social media platform.

Klarna is currently trying to break away from this image – in debt but hip – and has announced some product changes.

No more revolving credit

Klarna no longer wants to offer revolving credit in the future.

With these loans, a maximum limit is initially set that must not be exceeded, but there is usually no end date.

It doesn't matter how many smaller or larger amounts are borrowed and repaid, and how often, as long as the maximum amount is not exceeded.

Although this means greater flexibility, it also means higher interest rates.

The company intends to provide all loans with a fixed end date in the future.

The revolving perpetual loans would then be history.

In addition to purchasing in installments, Klarna customers have also previously been able to pay for goods ordered from one of the approximately 400,000 partner retailers such as H&M or Nike via Klarna only 14 days after the order without any additional fees.

The Swedish financial service provider now wants to extend this purchase on account period to 30 days.

A step that the US group Paypal has already taken - one of Klarna's big competitors.

This should give consumers more time to receive their goods safely before they make the payment.

The “Pay in 3” function should also give the option of paying for purchases in three interest-free installments 30 days apart.

The company also wants to remind customers who forget to pay their bills more often to repay them.

There should be an additional payment period of 45 days - with additional reminders.

The users should be reached via all possible means of communication: whether e-mail, post or the Klarna app.

make data public

In addition, the company wants to ensure more transparency and provide information on the so-called Wikipink website about which Klarna products are used most frequently, how the group makes money - for example about the reminder fees, how the use of Klarna affects affects the SCHUFA score of customers and statistics on who uses the app at all.

This data should be publicly available from Monday.

For example, only 3 percent of all German Klarna customers use installment payments when making purchases.

49 percent paid on account, the remaining 48 percent pay the amount immediately.

Around 1 percent of all invoices go to debt collection companies.

The proportion of those who receive a reminder fee should also be 10.5 percent among 18 to 25-year-olds - according to Klarna, this is at least the same level as in other age groups.

make mistakes and learn from them

Does the sudden change of heart come from the fact that criticism of Klarna has been getting louder in the past?

Klarna founder and boss Sebastian Siemiatkowski replies to the FAZ that the company was founded 17 years ago.

At that time he was 23 years old - and they had a simple concept.

At the time, there was no reflection on whether the products were good or bad.

It was based on larger companies - and they would have done the same.

That worked for a while too.

But then you asked yourself: Is that really good for the customer?

In general, people should only pay with the money they have, according to the Klarna boss.

Of course, many loans would have a useful purpose – but they would also have to be adjusted accordingly.

Loans should be set up in such a way that they can be repaid in a reasonable time.

The concept of revolving credit would no longer fit.

The installment purchase is a very popular product, and makes sense.

But there must also be a connection between the lifespan of a product and how long you pay for it, which is what prompted Klarna to make this decision.

That's also part of the business: making mistakes and learning from them.

Share of reminder fees decreased

When asked whether the decision to change the product would affect revenue, the Klarna boss replies: It definitely has an impact on sales and profitability.

However, the product changes have positive effects: In Sweden, where the changes have been in effect since last year, the proportion of invoices with reminder fees fell by 61 percent.

And those who opted for a financing option paid off their debts 20 percent faster.

The company says it wants to challenge the competition in Germany to follow suit.