Snoop Dogg-Backed ‘Pay Later’ Lender Prompts U.K. Ad Probe
(Bloomberg) -- U.K regulators are examining advertisements by Klarna, the Swedish lender backed by BlackRock Inc. and the entertainer Snoop Dogg, as part of a broad inquiry into whether the marketing of “buy now, pay later” services is encouraging reckless spending by young people.
The U.K.’s Advertising Standards Authority started the probe this month after complaints from consumers, said Freddie Alcock, a spokesman for the agency.
“We are alive to concerns around deferred-payment providers’ advertising,” Alcock said. “This includes concerns about whether Klarna’s ads are irresponsibly reducing the immediate perceptions of costs of purchases, particularly as many of their ads seem to be targeted at young people.”
Buy-now, pay-later services from Klarna and other lenders have become popular in recent years, luring customers with the option of putting off payment or making interest-free installments. There’s no cost to the consumer for deferring payment if installments are made on time. Retailers pay Klarna a cut of purchases.
But with a global pandemic, mounting job losses and U.K. living standards declining the most since 1970, Klarna has also drawn scrutiny. Critics say it encourages customers, particularly younger shoppers, to spend irresponsibly and fall into debt.
Last year, a group of U.K. nonprofits called on buy-now, pay-later companies to make loan terms and risks clearer at the outset and described some ads by these lenders “misleading.”
A Klarna spokesman, Dan Greaves, said the company was aware of the inquiry and working with the agency to address any concerns. “Promoting responsible spending is a priority for Klarna, and we recently reached out to the ASA proactively as part of our ongoing dialog with key stakeholders across the industry,” Greaves said.
He denied that Klarna’s advertisements targeted young people and said the company had invested in education programs to promote responsible spending and money management.
The Advertising Standards Authority doesn’t have enforcement authority and aims to work with advertisers to help them stick to the regulator’s standards, according to its website. However, if an advertiser doesn’t fix problems identified by the regulator, it can be referred to other authorities for further action including possible litigation.
Klarna says its business in the U.K. has increased sharply in recent years, to 9.5 million individual customers and 7,000 merchants. It says that its customers shop more frequently and spend more than ordinary shoppers. In addition to BlackRock and Snoop Dogg -- who once starred in the company’s commercials, urging viewers to “get smooth” -- backers include Permira Holdings and Sequoia Capital.
Permira declined to comment. Representatives of BlackRock, Sequoia and Snoop Dogg didn’t respond to requests for comment.
Klarna’s biggest markets are Germany and the U.K. It also has 9 million customers in the U.S., where the company has been setting the stage for an initial public offering. This week, Reuters reported that Klarna was in talks with investors for a round of funding that would value it at more than $10 billion.
Greaves, the Klarna spokesman, wouldn’t comment on the report. A funding round last year valued the company at $5.5 billion.
Alice Tapper, the founder of the personal finance website Go Fund Yourself, started a #regulateBuyNowPayLater campaign in June urging the U.K. government to protect young consumers from misleading buy-now, pay-later products. She says she was one of the complainants who submitted evidence to the regulator.
Tapper said she welcomed the ASA inquiry as “a positive first step toward ending the trivialization and glamorization of what is essentially debt.”
(A previous version of this story corrected the number of Klarna customers and merchants in the U.K. and U.S.)
©2020 Bloomberg L.P.