In recent years, Klarna has become a popular payment service provider for online shoppers in the UK due to the variety of payment options they offer customers to make shopping easier and more accessible.
While this may seem like a win-win situation for both customers and merchants, it can actually have a significant cost impact on the merchant.
What is Klarna?
Klarna is a Swedish financial technology company that offers a range of payment and financing solutions for consumers and merchants. Founded in 2005, Klarna has since become a popular payment service provider in the UK and other countries.
One of Klarna’s most popular features is the “buy now, pay later” option, which allows customers to defer payment for their purchases. This means that customers can receive their products immediately and pay for them at a later date, typically within 14 to 30 days.
Klarna also offers a range of other payment options, including instalment plans, which allow customers to spread the cost of their purchases over several months.
However, these payment models also encourage customers to order multiple items with the intention of returning some of them. Klarna’s return policy allows customers to return items for free within a certain time frame, making it easier for them to buy multiple products and only keep the ones they want.
How Does Klarna Impact Merchants?
Firstly, the merchant must bear the cost of shipping and handling for returned items. This can be a substantial expense, especially if the merchant offers free shipping to customers. Additionally, returns can result in an increase in customer service inquiries, which can be time-consuming and costly to handle.
Secondly, the merchant may lose out on potential sales due to the high return rate. Customers who order multiple items with the intention of returning some of them may ultimately end up returning everything, resulting in lost revenue for the merchant.
Lastly, merchants may see a decrease in profit margins due to the high return rate. When customers return items, the merchant may have to sell them at a discount to clear inventory, resulting in a lower profit margin.
Despite these potential costs, many merchants continue to offer Klarna as a payment option due to its popularity among customers. Whilst it can be convenient for customers, it can have a significant cost impact on merchants due to the high return rate. As such, merchants must carefully consider the potential costs and implement strategies to mitigate their impact.