Financial Greenwashing?

Klarna has been enlightened

Heard of it? “Klarna is NOT BNPL” — at least that’s what founder Sebastian Siemiatkowski wrote on Twitter recently. However, he wrote also “Klarna is a payments network like VISA or MasterCard” and that’s where it gets more interesting. According to his tweet, 60 percent of settled transactions should be credits. In summary, Klarna sees itself in the same league as VISA and MasterCard, primarily granting loans but claiming to not be BNPL. Paper, as we all know, is patient — perhaps it would help to take a detailed look at the action in order to get an idea of the facts and to assess for oneself whether it is financial greenwashing.

Judge a man by his actions rather than by his words; for many act badly and speak excellently.

Matthias Claudius (1740–1815), German poet and journalist.

BNPLWTF

BNPL stands for Buy-Now-Pay-Later and represents a special form of mini loans. These comprise amounts of less than 200 euros and are unregulated due to the currently valid legal situation. In the form of “Flexing with #Klarnaschulden” – these have gained sad notoriety, at least in Germany. The development around mini-credit shows that the problems involved have been recognized and regulation is only a matter of time.

“The EU Consumer Credit Directive has to exist because there are many exploitative practices in credit,” Malte Gallée, shadow reporter for the Greens/EFA group, told Business Insider. “This is protecting borrowers from lenders.”

53% of websites that offer BNPL do so via Klarna

Of all the websites on the Internet that provides payment via BNPL, 53 percent use processing via Klarna. By contrast, the biggest competitors — Afterpay, Sezzle, Zippay and Affirm — have a combined share of only 39 percent. Of all the websites that offer Klarna as a payment method, 34 percent are from Germany.

The EU Consumer Credit Directive is currently being revised and will in future include requirements for mini-credit and delayed payments. In September 2022, the trilogue began, in which the Commission, Parliament and the Council of Member States agree on a common legislative text. Among other things, the proposals for the amended directive provide that, in principle, more forms of credit will be covered by the directive. This applies, among others, to mini loans with a volume of less than 200 euros and BNPL loans. Due to our sustainable orientation, we very much welcome this. To understand why we are so critical of the BNPL business, let’s take a quick look at the history of debt and credit card companies.


In the beginning were the credit cards

To understand what is just repeated in adapted form, let’s start with the emergence of the credit card and the very well-known companies in the segment today. The first universal credit card was that of Diners Club, which was established in February 1950 in the form of a club. It was to be used initially only by club members, friends and acquaintances of founders Frank McNamara and Ralph Schneider, at two dozen select New York restaurants.

However, the narrow definition of the target group was soon overcome. The next universal credit card was that of Franklin National Bank in New York in August 1951, where the intention was to push the consumer credit business. Since then, a distinction has been made between travel & entertainment credit cards, which were initiated by Diners Club, and bank credit cards, which date back to Franklin National Bank.

Franklin National Bank didn’t stay alone with its credit card for long. Many banks in the then even more fragmented banking landscape followed suit. In 1968, one in ten U.S. banks had a credit card program, each with a geographically limited acceptance area. Expansion was achieved with several interchange agreements, which eventually evolved into MasterCard and Visa.


Toxic Credits

Now let’s jump from 1966 to the present day and look at the United States of America, which is known as the home of credit card debt. According to the latest figures from the New York Fed, the mark of 16 Bio. Dollar exceeded for the first time in the second quarter of 2022.

Credit card debt / Outstanding Q3 2022 ©Bloomberg

Credit card debt at record levels and debtors in the U.S. increasingly unable to repay their loans. At the same time, there are also increasing problems with “subprime borrower,” i.e., those with lower credit ratings.

Impacts on the global economy, such as lack of purchasing power (the U.S. ranked #7 in 2021 according to Wikipedia), are possible. However, a new attitude toward the “credit card” now seems to be taking root among Americans, and they are becoming more aware of how to deal with debt. When even the American who has taken this form of financial freedom for granted for many decades comes to a more conscious approach to debt, one could almost assume a “happy ending” …

Fight Club GIF - Find & Share on GIPHY
Final Scene of the movie “Fight Club”

Same, same but different

If a change in thinking now takes place and people no longer fall recklessly into the debt trap, then … right, the bait is either no longer the right one, or the target group or perhaps both. The patterns seem to be the same and the result is not deceptive – people fall into the debt trap.

The consumer advice centers in Germany focused on Klarna some time ago due to high fees and the handling of repayments. In the meantime, however, the granting of loans is also being questioned.

Annabel Oelmann, board member at Verbraucherzentrale Bremen, has given an interview about this and we would like to quote from it to make it clear what role Klarna has taken after the immunity of the German versus the credit card.

… many people quickly lose track of this, especially if they do it several times, and then the debts can accumulate quickly.

While Germany, unlike other markets, has never been particularly receptive to credit cards, the share of “Buy Now Pay Later” is set to grow strongly in this country as well

The young target group in particular is very receptive. However, the latter is also the most vulnerable, as they are often more inexperienced and more likely to lose track of things. This significantly increases the risk of being over-indebted.

Annabel Oelmann, member of the board at the Verbraucherzentrale Bremen

Whether a company operating in the financial sector did not know all this long ago and consciously accepted the implications for its young target group, we will probably never know.

Happy Joy GIF by Klarna - Find & Share on GIPHY
Offficial Klarna Giphy

Debts make sick

Now, if you look at the last few decades in which credit card companies have been, and still are, largely responsible for creating and promoting massive debt, especially in the U.S., you can’t look past the findings and studies. It has recently been proven that debt makes people ill. They are sometimes responsible for serious illnesses such as anxiety, high blood pressure, depression, cardiac arrhythmias, sleep disorders, etc., thus affecting people’s life expectancy.

However, if a company sees itself in a row with VISA and MasterCard, then it would be advisable from a business point of view to take such findings into account and to protect people from such diseases by all means. To suddenly give oneself the stamp of sustainability after 17 years, although one could have known about the effects for a long time and taken them into account, is at least questionable.


Sustainability

Never has it been more fashionable to position the company as sustainable, even though actions would suggest otherwise. But sustainability is something that is anchored in the foundations of the company and, above all, in the personality of the founders. Sustainability is not something that a company “does” or to which it briefly “commits” once in a while because the headwind is too great.

Our entire company is committed to sustainability and people are always at the center of everything we do. So it’s natural for us to use the tools, such as the wunderbon Privacy Wallet, to give people the opportunity to provide other important information about their own sustainability and opportunities for change, for example, to even more sustainable living. Through the data we aggregate and provide with the products we purchase, we help to ensure that an examination of the environmental impact of the product can take place in the first place. In doing so, the information is always linked 1:1 with one’s own actions and can thus be better absorbed.

We are glad that the pressure on BNPL providers is starting to have an effect. Klarna recently announced its intention to be sustainable and to better protect its own customers and help them save money. We say “Welcome to our domain”. We are pleased that Klarna is rethinking and following our example. That is why we are leading the way with good values.


Photo by Sora Shimazaki