Klarna

The BigBrotherAward in the consumer protection category goes to the Swedish company Klarna Bank AB.

I didn’t know Klarna before a committed person nominated them at the BigBrotherAwards. “Just another standard market payment service provider”, I thought to myself.

But then I dug deeper.

A few numbers:

Klarna has 147 million customers, 400,000 merchants take part. Two million transactions are processed per day, the number of employees is 5,000 – and the company is valued at more than 10 billion dollars. This makes it the highest valued financial technology company in Europe and the fourth largest in the world.

Klarna mediates payments for online stores as a service provider. They buy invoices from the shops – and now the customer has to pay the outstanding amount to Klarna (in the world of commerce this is called “factoring”). Even payment by instalments can be arranged with Klarna – if you can’t pay your bill after 30 days. Paying is very easy. The best way is to use the Klarna app – it even fills in all the details that the shops ask for when you make a purchase. You can also make a fixed-term deposit with Klarna if you don’t want to blow your hard-earned money immediately – because what many people don’t realise is that Klarna has been operating as a bank since 2005. Klarna also operates as a price comparison portal. Klarna organises your finances on its own app. The all-round carefree package.

That doesn’t sound too terrible yet, does it?

Why do shops go along with it? Because Klarna’s model is extremely attractive for them: customer invoices turn into cash immediately, no more hassle.

Of course, Klarna also chooses very carefully whose invoices they take on. Klarna wants to know exactly who wants to buy on account – and if in doubt, can refuse to accept payment.

Which already brings us to the problem: In order to reduce its own risk of non-payment, Klarna naturally collects a lot of … data.

What could be better for assessing the solvency of willing buyers than the ability to look directly or indirectly at their account movements? Because let’s be honest, hand on heart; what people are willing to spend money on and how much – that is deeply insightful in every way. Then you spin around with the usual scoring algorithms and separate the willing buyers into “good” and “bad” customers (the older ones among you will remember the BigBrotherAward 21 years ago, when we uncovered this inhumane practice by consulting companies) – and presto, hocus-pocus: paying on the internet, which is supposedly so difficult, can now be advertised as “finally very easy”.

Not overly lucrative, though, it seems.

One of the founders, Niklas Adalberth, told how the company actually imagined making money at a start-up event in Helsinki in 2015. In response to a question from the audience:

“Do you do the debt collection yourself?” (debt collection means collecting payments with a tougher hand), there was this interesting answer:

“Yes. That is one of our sources of income. The best customer is the one who does not pay directly but receives a reminder. And we don’t do that under the Klarna name […]. We don’t want to ruin our own brand.”

Adalberth then didn’t want to go into too much detail about the mischievous question of whether this had something to do with the Estonian mafia.

For the time being, that was just a whimsical dialogue at a start-up conference. But what is the name of the company that does the debt collection in Germany under a name that is not Klarna? In consumer protection portals and online forums, reports and questions are accumulating from people who have been cornered by the company coeo GmbH and its lawyer Monika Mumm on behalf of Klarna. And this is completely independent of whether the claims were justified or not.

Apparently, this is really one of Klarna’s business models – the collection of unjustified claims. For example, many people received payment requests from the streaming provider Joyn for the private TV channels Pro7 and Sat1 out of the blue. They had never ordered this. Calls to Klarna or Joyn didn’t help – the call centres just brushed all those astonished people off. I don’t want to know how many became so annoyed that they eventually paid after the debt collection became more and more urgent and threatening.

One customer reported that he was charged 54 euros in collection costs because he had not paid 1.20 Euros of reminder fees. In the meantime, a lawyer from Bremen has filed a complaint: these reminder fees are inadmissible and may no longer be charged.

As a reminder: serial dunning for the sole purpose of making money is inadmissible – even if the claims are justified.

The cronies at Klarna are well aware of this. None of the people who received payment reminders unjustly or with excessive fees has ever reported that Klarna actually sued for payment. Note for non-lawyers: suing is expensive. Not because of the court costs, but because of the time involved in each lawsuit.

That means that Klarna apparently is willing to tolerate high payment defaults. How a company finances this, when their business model is based on collecting small amounts of money for payments, remains a mystery to me.

The friendly but tough financial service provider or bank has to earn money with something, to make the investments made in the company worthwhile. After all – as we heard at the beginning – the company is valued at 10 billion dollars.

How does that add up? That’s what I would like to know. I can’t prove it, but to me it smells like a huge bluff.

What if Klarna was just faking a successful business in the so-called fin tech market – to attract investor interest? To make the financial bets on the company rise to 10 billion? I explicitly do not want to accuse Klarna of any trickery in the manner of Wirecard, Flowtech or Balsam AG. But an investor has to think of every possibility, no matter how remote. And what do I see as an investor who takes an interest in Klarna?

According to their own information, they process two million transactions every day; 400,000 online shops offer Klarna as a payment option. That seems serious.

But what would seem lucrative?

To demonstrate that I screen my customers extensively. Because what can you reliably make into a business model in the financial market? Exactly: collecting data. That has always worked. Investors always like to believe that knowledge is power and privacy is theft of corporate property.

Before I bother explaining that, I’ll just let Klarna speak for itself. I’ll quote from Klarna’s privacy policy. True to style, wearing a mafia hat.

[Laudator puts on hat and glasses, takes off jacket and waistcoat, revealing braces].

“Data protection should be smoooth. As you might’ve noticed, we’re not your typical financial services provider. Just like we aim to remove all friction from your payment related matters, we believe your privacy can’t just be an afterthought.”

No, Klarna does not treat your privacy as a minor matter. They spend a lot of energy undermining it.

Paying with Klarna: When you use one of our pay now, pay later, financing services or wish to apply to our Klarna card or use our one-time card (available in the app), we will carry out a credit check internally and via third parties, retrieve your contact and identification information and information about the interaction between you and Klarna. This allows us to have a better understanding of your financial circumstances and your eligibility for certain products so as to provide you with the best options.

And please don’t remind us that we had real privacy issues because suddenly strangers could see, for example, autofill data. That happened for real!

Klarna app: When you use the Klarna App through the mobile app or a web portal, we may collect information on your overall interactions with the app, your past purchases, your transactions via bank accounts you have connected, as well as items you’ve liked in the past or chosen to add to your Klarna App. This is so we can improve our app experience, provide you with a more personalised in-app experience, […] remind you of upcoming payments, or give you a personal financial overview.

Hey, it’s all about your security … which is very close to our hearts. Wouldn’t it be a shame if something might happen to you … Therefore:

Safe shopping: When you use Klarna’s services we collect your contact- and identification information, payment and financial information, device information, information on goods and services provided, as well as information about the interaction you’ve had with Klarna or stores, to be able to protect you against fraud and prevent attempts of money laundering.

I do have to ask in the audience now: how many of you are regularly involved in money laundering …?

Depending on the service you wish to use, we may need to share some of your data with a select number of third parties, for example partners […] or authorities.

Targeting and tracking technologies may be included and used by our advertising partners, […] They do not store any personal data, but are based on the unique identification of your browser and internet device.

Yes, Klarna shares the collected data with companies that may use it for their own purposes […] These are: Google Marketing Platform, LinkedIn, Facebook, Bing, Semasio, Snapchat.

Of course, my data is in particularly good hands THERE.

(I’ll take off the mafia outfit again).

So Klarna knows pretty much everything about their clients.

They also push their “Klarna app”. This confusingly presents itself like a browser. I experienced this first hand. I tried out the Klarna app and surfed the web a bit after I had done my research. At some point I came across the Digitalcourage shop and put some of our wonderful data protection articles in the shopping cart.

At the bottom of the screen I saw the smooth Klarna logo whispering to me: “go ahead and order, buy more, you don’t have to pay right away, I’ll do it for you …”. Only then did I realise that I was still trapped in the Klarna app and not – as I had thought – moving around the free web with my standard browser.

I only noticed this because the Digitalcourage shop does not offer Klarna payment at all. Klarna simply tricks you. Klarna squeezes in between the customer and the shop without being asked. So Klarna could have generated a one-time credit card number and paid for me in the shop. I am horrified enough that we accept Paypal in the shop (while advising against it in the payment process). But now Klarna is sneaking in uninvited from the outside?

This begs the question: is the Digitalcourage shop now one of the 400,000 shops that supposedly use Klarna? And: has this app been recording the data I have entered on the web the whole time?

Another question: “Is this really what the world needs? Buying things you might not need at a certain interest rate that you will pay off in the future?”

This is not from me. It comes from the co-founder of Klarna mentioned above. He already left the company in 2016 and invested his money in a foundation – to support future “[…] top talents, so they tackle real problems, not build the next online casino.”

I can even name something we really need. Electronic cash. With it, you could pay anonymously and securely for both sides – merchants and customers – completely without data leeches like Klarna.

This would exponentiate the sales opportunities for providers of intellectual property at a stroke. Newspaper publishers or authors who offer their articles on the web would have the chance that recipients could pay for this service without effort, without the absolute necessity of subscribing, without disclosing their own preferences and creating personality profiles.

Klarna, on the other hand, has an unclear business model, threatens customers with excessive reminder fees and reaches deep into its bag of tricks to appropriate their privacy. Klarna not only collects personal data, but also bundles it, aggregates it and generously passes it on.

Dear people at Klarna: there are so many sensible things you could do. And if you were to program and establish something sensible like digital cash, you would be celebrated. Today, however, you are not being celebrated, you are being ‘slagged off’.

Congratulations on the Big Brother Award 2022 in the consumer protection category, dear people from Klarna.