Clearpay vs Klarna. Which BNPL Option is Better for You?
Would you like to take charge of your personal budget and reduce your shopping costs by spreading out your payments? Or are you looking for a reliable tool that can allow your e-commerce business to accept instalment payments safely? Then consider using Clearpay or Klarna. They are two of the best digital platforms for making or accepting online instalment payments.
Clearpay and Klarna have become leaders in the buy-now-pay-later (BNPL) market in the fintech industry. Their services are available to users in many countries. However, since you are less likely to need both of them, you will have to choose one. So, how do you know which one to choose? In this article, we will compare Clearpay and Klarna and give our verdict on which of them is better. Read on to know which platform is better for you.
What is Clearpay?
Clearpay is an international platform that enables shoppers and retailers to manage payments in interest-free instalments. The company, which is known as Afterpay outside Europe, was established by Nick Molnar and Anthony Eisen in 2014 in Sydney, Australia.
The mission of Clearpay is to enable customers around the world to feel great whenever they make online purchases. It is not like traditional credit service providers that allow their customers to get into extending and revolving debts, thereby incurring interest and fees. Instead, when a customer cannot make timely payments, Clearpay prevents them from growing their debt by making them unable to use the service.
What is Klarna?
Klarna is working towards becoming the world's favourite way to shop. It is a fintech company that was founded by Sebastian Siemiatkowski, Niklas Adalberth, and Victor Jacobsson in 2005 in Stockholm, Sweden. It claims the right to boast of being the oldest BNPL service provider in the world.
The mission of Klarna is to create a safe, simple, and "smooth" online shopping experience by freeing consumers and retailers from unnecessary friction. This leading global provider of payments and shopping services is disrupting the fintech industry through its innovative services, which include direct payments, a variety of instalment plans, and pay-after-delivery options.
What is Buy Now Pay Later (BNPL)? How Does it Work?
Simply put, Buy Now Pay Later (BNPL) is an instalment payment plan. It is a kind of purchase arrangement that has been around since the days when businesses sent mail-order catalogues to customers at their homes. BNPL recently regained popularity following the explosion of some fintech unicorns that have emerged in response to the increase in online shopping and consumers' desire to postpone paying for goods without incurring credit card interest. Clearpay and Klarna are examples of modern BNPL services.
How do BNPL services work?
When using the majority of BNPL platforms, you purchase online as usual at your preferred stores but go through a separate checkout process. You will need to choose a BNPL service, such as Clearpay or Klarna, as your payment method in this situation. While most of the top e-commerce brands already provide BNPL as a payment option, some outlets do not.
You can choose your payment terms after you have decided on a service. These range from extending the payment by some days to dividing it into up to 6 smaller payments, which may be deducted automatically from your traditional bank or neobank account periodically.
For instance, a customer can make a purchase with Klarna or Clearpay and spread out the payment for it. While Klarna offers three alternative payment options, including the option to pay in three equal instalments, Clearpay divides the purchase into four payments. Both are basic add-ons that can be added to e-commerce websites. They have simple integration procedures.
Do BNPL services bring any benefits to businesses and consumers?
Offering BNPL payment options like Klarna and Clearpay brings many benefits. Generally, for merchants, it increases their online sales and makes their customers happy to pay without feeling stressed. For example, if they offer Clearpay or Klarna, while the customer is making payments to them in instalments, the full cost of the item(s) purchased has been paid by the chosen BNPL service provider. Besides, these apps provide additional insights into customer behaviour through data analytics.
On the other hand, where we have consumers, BNPL services give them flexibility in making purchases without running into debt. They serve as alternatives to credit cards. Moreover, Clearpay, Klarna, and other BNPL platforms help consumers avoid interest payments. Although there are low-interest and zero-interest credit cards, some people would rather enjoy being able to pay in instalments without thinking about interest rates.
What is the BNPL Model of Clearpay?
Clearpay offers one instalment payment model, which is a pay-in-four option. In this BNPL model, the first instalment is always instantly paid, which is an affordability requirement. The repayment term is four months. But missing a part payment could be costly. While this service does not charge a purchasing fee, it requires the payment of £6 as a fine for missing a repayment. It may also charge £6 if your order is more than £24.
Split your payment into 4 with Clearpay
You can use Clearpay to shop now and pay later without incurring interest. Your purchase will be divided into 4 equal instalments (that is, 25% each), which are due every 2 weeks.
To make a purchase, new customers must first open a Clearpay account, whereas returning customers only need to log in and find their favourite stores in the Shop Directory. For online orders, after you check out, the merchant will send your goods to you. But for in-store purchases, you will need to use the Clearpay mobile app to set up a Clearpay Card and use it with any of the popular m-wallets, such as Google Pay and Apple Pay.
What is the BNPL Model of Klarna?
Unlike Clearpay, Klarna has more than one BNPL model. It provides different instalment payment alternatives, allowing you to select your repayment style based on your unique situation. While Klarna may do a light credit check to ensure affordability, it typically accepts most customers.
There are four main models of Klarna’s BNPL service. They are Pay-in-3, Pay-in-4, Pay-in-30, and financing. Access to some of them depends on your location.
With Klarna’s Pay-in-3 plan, you can spread the cost of purchasing an item from a supported merchant over a period of three months without paying interest. After purchasing the item(s), the repayment term can range from 30 to 60 days. Klarna automatically takes the money from the customer’s linked bank account.
In the Pay-in-4 plan of Klarna, your purchase is split into four equal payments. The first payment (25%) is collected at check out, while the other three are deducted fortnightly, that is, every two weeks. Klarna allows you to spread the cost over six weeks, and it will not charge you any fees or interest if you pay on time.
In this Pay-in-30 model or plan, Klarna allows you to get an invoice for the entire cost of your order and have up to 30 days to pay it off. It shows a high level of trust towards the customer but requires a soft credit check.
Klarna invoice financing
Klarna also has the option to divide your payments into regular monthly instalments that you can make over time. This model needs a hard credit check and has interest rates as high as 18.9% APR. It works like a typical credit card offering.
Klarna vs Clearpay: Cross-Comparison
Comparison by Usability
With simple interfaces and UI options, the Clearpay and Klarna applications are exceedingly simple to use. Each app includes a highly logical part that is well-labelled for the user to easily find stores, categories, deals, discounts, and financing. Contrary to Clearpay, which only provides a "set budget" as a single reference to everything pertaining to a limit, Klarna is superior since it contains budgeting and tracking graphics. Also, whereas both applications function flawlessly, Clearpay demands more information during the first setup; therefore, it takes longer to set up.
Comparison by Credit Check Position
When you create an account with Clearpay, no credit check is performed on you. Instead, it may pre-authorize your designated card up to the amount of your first instalment to ensure that you can make repayments.
On the other hand, to determine if customers can afford some of its BNPL models, Klarna does a soft credit check on them. This kind of check is invisible to other lenders, and it does not appear on your credit report. However, a hard credit check will be performed on you if you choose Klarna’s financing model, which functions like a typical credit system. A hard check can affect your credit score negatively.
Comparison by Safety and Security Features
Regarding professionalism, security, and financial compensation in the event of issues, both applications are quite secure to use. You are not directly protected for things beyond a specific amount, whether they are defective, not delivered, or the store goes out of business, as third-party purchasing apps. It is important to know these conditions because if something goes wrong, you will have fewer rights than if you visited a store in person and used your own credit card.
Comparison by Repayment Plans
Klarna has basically three repayment plans: “Pay in 3,” “Pay in 4,” and “Pay in 30,” while Clearpay has only one, which can be termed “Pay in 4.” This means that Klarna gives merchants and shoppers more flexibility in making instalment payments than Clearpay.
Comparison by Repayment Default Fees
Klarna charges capped fees for missing or late repayments. You will only be assessed one late fee per late instalment. Therefore, the maximum you might be assessed is $9 if a payment is late.
On the other hand, if the order is less than £24 and the repayment is missed or late, Clearpay will impose a comparatively low fee of £6 on the customer. However, if the order is for £24 or more, Clearpay will levy a £6 late fee if the payment is not received by the deadline and a further £6 late fee if the instalment is still unpaid 7 days later.
A BNPL service can use a debt collection agency to get their money back from any customer who owes them for too long.
Comparison by Coverage
Globally, Clearpay has more than 14.6 million active customers and over 85,000 retail partners. It operates in the United States, Canada, Europe, Australia, New Zealand, and the United Kingdom.
On the other hand, Klarna has more than 150 million active users and over 450,000 retailers. It provides its services in more than 45 countries, including the United States, Sweden, Norway, Denmark, Finland, Germany, Israel, Austria, and the Netherlands. Obviously, Klarna wins over Clearpay in terms of coverage.
The downside of Klarna is that it performs a credit check on its users to allow them to make certain BNPL purchases. Besides, it charges a fee if you miss a repayment.
Your credit limit on Clearpay gradually increases over time. It is not instantaneously increased because the company takes time to study the behaviour of its customers and determine those who are eligible for increased credit.
Yes, Klarna can help you build credit if you use the Pay-in-3 or Pay-in-30 plans and always make timely and full repayments.
Klarna does not have a maximum limit on how many items you can buy using its services. But higher limits must be approved according to your credit history with Klarna and the total cost of the items you have selected for purchase.
Klarna can make you pay more upfront if the order amount is greater than your purchase power and its assessment of other credit factors.
There is no particular credit score needed to use Klarna. Besides, whether a credit check will be performed on you depends on the BNPL model you pick and the purchase you want to make.
The percentage Clearpay charges for late or missed repayments depend on the value of the item. For orders above £24, Clearpay does not take more than 25% of their value.
Klarna usually runs a soft credit check. However, it can run a hard check when a customer wants to use the financing service, which works much like a traditional credit line.
When you miss a payment that you were to make to Clearpay, the company will stop you from using its BNPL service and give you until 11 PM on the next day to make the payment. If you allow that time to elapse without making the required payment, you will be charged a late fee.
Both Clearpay and Klarna are useful services for spreading out the expense of purchases, especially since they avoid the need for credit cards and high-interest rates. While Klarna gives you more payment alternatives and wider coverage, both brands typically offer a simple and effective service.
Consumers who make wise use of top BNPL services like Clearpay and Klarna will benefit much from them. But those who misuse them should be prepared to spend money on late fees and possibly harm their credit scores.