Comment: Why Klarna's courting of young shoppers is a problem Published on: 18 May 2023 Writing for The Conversation, Jane Brown and Jehana Copilah-Ali discuss why buy-now-pay-later service Klarna's use of Paris Hilton and TikTok-style algorithms to reach young shoppers is a problem. , and , After adding a few too many items to your online shopping cart, you head over to the payment page to check out. Alongside the usual credit card and PayPal payment fields, you see an enticing new option. A colourful button offers to allow you to spread your payment over several months at 0% interest. This would lessen the immediate dent a payment to ASOS, Shein or H&M might make on your bank balance, and allow you to purchase all the items in your bag. Buy now, pay later (BNPL) services are now readily available with thousands of online retailers. Nearly 17 million consumers in the UK have used like Klarna and Clearpay. BNPL companies offer a period of interest-free credit (usually several months). They typically levy late fees if this time frame is exceeded, and pass it on to debt collectors if the repayment is repeatedly missed. While people of all ages are increasingly to manage in the cost of living crisis, data shows that BNPL is between the ages of 18 and 34. In order to target this audience – Millennials and Gen Zs – Klarna relies extensively on colourful, upbeat social media marketing strategies. The company has just a redesign of its app that will feature a “discovery feed”, similar to TikTok’s “for you page”, to offer shoppers personalised recommendations. A 2021 offers detailed tips for businesses hoping to win over young shoppers on social media: Learning how to speak to these audiences is even more important than ever, especially as their buying power eclipses that of previous generations. Klarna has also enlisted a famous face to help it reach an audience enamoured with noughties nostalgia. In February, the company announced a partnership with American reality TV icon and multimillionaire heiress Paris Hilton. Calling her a fashion, tech and business trailblazer, Klarna’s chief marketing officer, David Sandström, that Hilton was a fitting partner for the company because of “her shopping prowess”. Hilton won’t just be fashion inspiration, she also represents a capacity to spend mega-money. It’s almost impossible to imagine Hilton using Klarna to the same end as consumers who use it to delay payments for groceries or other essentials. Indeed, in , Hilton trains her dog to shop using Klarna so they can have matching tracksuits. A Klarna spokesperson told The Conversation: We’ve made a conscious decision to be different, to not feel like the big traditional banks but communicate in a way smart shoppers can relate to. Our products are designed to encourage responsible spending, and with 99% of our lending repaid, it’s clear they do just that. Beware or pay later It’s socially irresponsible for Hilton to deliver messages about how people should manage their money. This fun, carefree endorsement could be particularly misleading or dangerous for those wanting to escape the strain of inflation and high bills that permeate current everyday living. BNPL credit gives shoppers an opportunity to spend quickly and easily, and provides a brief respite from financial troubles. But it comes with potential longer-term pitfalls. Consumers may find this particularly difficult to manage, as our relationship with spending money as a “reward” or “retail therapy” is very much part of western culture, even in times of economic hardship. This is evident in : the inverse correlation between economic downturn and increased sales of smaller items. In other words, when people cut back on big ticket spending like holidays or cars, they treat themselves with more affordable luxuries like lipstick, coffee and chocolate. A partnership with Hilton could downplay the seriousness of borrowing. One third of BNPL borrowers said in 2022 that their loans had . Klarna claims that 99% of their lending is repaid, and 40% of customers pay the company back early. But data reflecting the wider sector suggests that BNPL users are struggling to keep up with payments. A survey by Credit Karma found that 41% of BNPL users had missed a payment and incurred charges from . StepChange reported that half of those with a BNPL loan found it difficult to keep up with bills and credit repayments, with 17% of borrowers in . StepChange also found that 40% of BNPL borrowers had fallen behind on housing payments or utility bills to keep up with credit repayments. And 39% of people with BNPL debt reported that credit had a negative impact on their health, . A found that while BNPL services are more accessible than credit cards, two in five users are unclear on the terms and conditions, and do not fully understand the consequences of missed repayments. Users were also unaware that providers were not required to do the same financial checks as credit cards to ensure consumers can manage and afford repayments. When BNPL providers pass unpaid debt to debt collection agencies, this can then negatively affect your . Research shows that this can push people further into financial trouble. A poor credit score limits access to other mainstream credit sources, so if someone needs money, they feel vulnerable and are such as payday loans or pawning, which can result in unmanageable debt. In a vulnerable situation, consumers oscillate between , leading to a spiral of emotional decision making that can make people feel trapped into using the service again. These companies are still largely unregulated in the UK, with plans for regulation legislation from the Financial Conduct Authority . Until then, consumers need to be vigilant when using BNPL – that includes being critical of the ways it is marketed to them, including spending advice from one of the world’s richest people. , Research Associate, and , Lecturer in Marketing, This article is republished from under a Creative Commons license. Read the . 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