{"id":11948,"date":"2025-06-08T11:23:00","date_gmt":"2025-06-08T15:23:00","guid":{"rendered":"https:\/\/sharewatch.com\/wp\/2025\/06\/08\/borrow-ito-consumers-taking-on-debt-for-a-takeaway\/"},"modified":"2025-06-08T11:23:00","modified_gmt":"2025-06-08T15:23:00","slug":"borrow-ito-consumers-taking-on-debt-for-a-takeaway","status":"publish","type":"post","link":"https:\/\/sharewatch.com\/wp\/2025\/06\/08\/borrow-ito-consumers-taking-on-debt-for-a-takeaway\/","title":{"rendered":"Borrow-ito: Consumers taking on debt for a takeaway"},"content":{"rendered":"
\n

Economists and market watchers think the world may have a new recession indicator \u2013 the fact that more people can now take out a small loan to pay for their takeaway.<\/p>\n

This relates to a recently-announced partnership between Klarna and DoorDash \u2013 which is a big food delivery service in the US. Klarna has also partnered with Deliveroo Ireland (which was recently acquired by DoorDash). So we\u2019re not being left out in being able to borrow our way to a burger and chips.<\/p>\n

Let\u2019s take a step back – what is Klarna?<\/b><\/p>\n

Klarna is one of the main players offering what\u2019s called ‘buy now, pay later\u2019 services. It\u2019s a Swedish company that\u2019s actually been around for 20 years, though it only launched in Ireland just under four years ago.<\/p>\n

And the way its BNPL business works is that you buy something from a retailer that partners with them \u2013 generally online. Then when you get to the checkout you\u2019re giving the option of either paying upfront as you normally would, or you can break the amount up and pay it in instalments over a number of weeks. That might mean breaking up a purchase price into four equal payments, spaced out over six weeks.<\/p>\n

So, for example if you buy a \u20ac500 TV, you\u2019d pay \u20ac125 on the day, then another \u20ac125 in two weeks\u2019 time, another \u20ac125 in four weeks and then the last payment after six weeks.<\/p>\n

And when you do that there\u2019s no interest applied, no fee or charge or anything like that \u2013 you pay the same as you would have if you\u2019d just bought it outright on day one. Instead, Klarna generally makes its money by charging a commission to the retailer for handling the payment.<\/p>\n

In a way it\u2019s very similar in spirit to the old-fashioned hire purchase option that a lot of appliance retailers here have offered for years. The big difference is that it\u2019s generally done over a shorter period of time – so it\u2019s a matter of weeks rather than months or years. And it\u2019s generally offered at a lower, or now cost altogether.<\/p>\n

And, it being a fintech, Klarna is designed to be easy to get set up on and use \u2013 so there\u2019s a much lower barrier to entry, and customers can get spending through it quite quickly.<\/p>\n

But while Klarna is the big player in this market, it\u2019s not the only one offering BNPL. Revolut offers it too \u2013 although it does charge a transaction fee, so it isn\u2019t entirely free.<\/p>\n

Retailers like Very have their own buy now, pay later option. Meanwhile there\u2019s Humm, which a lot of retailers here use. That\u2019s very much in the mould of the old fashioned hire purchase model mentioned before.<\/p>\n

Apple, meanwhile, also offer a BNPL option in some countries \u2013 but not in Ireland.<\/p>\n

Is there anything wrong with using BNPL?<\/b><\/p>\n

\"\"<\/b><\/p>\n

Not necessarily.<\/p>\n

Some people liken it to a credit card because, just like cards, BNPL is generally a relatively small, unsecured loan with minimal baggage attached.<\/p>\n

And, like a credit card, if you\u2019re smart in the way you use it, it won\u2019t cost you anything extra. In fact it can become simply another tool you have to manage your finances and expenses.<\/p>\n

But, like a credit card, BNPL does create an additional cost if you don\u2019t make your repayments in time. It could go from being free to very expensive, very quickly. And if you completely lose control of the debt, it could become a major problem for you. In the case of Klarna, it does warn customers that missed payments may incur a late fee \u2013 and it also reserves the right to pass on your bill to a debt collector, which obviously could get messy fast.<\/p>\n

Anecdotal evidence suggests that the company is more inclined to just write the debt off \u2013 certainly if it\u2019s small \u2013 and then block the user from being able to borrow anything else from them. But the risk remains that you could get pursued by what can often be an aggressive third party, which will apply fees and charges of their own beyond the money that you owe.<\/p>\n

But even without it getting to that extreme stage, not clearing a BNPL loan in time could become downright expensive. One of the other providers in Ireland offers interest free repayments for up to six months \u2013 but if you fail to clear what you owe by then, you get hit with a near 40% interest rate. That is approaching pay day lender territory.<\/p>\n

And bear in mind that this kind of lending generally isn\u2019t done with any kind of credit check behind it. That\u2019s part of what makes it so accessible to people, and so easy to get up and running. But it also means that the companies lending users the money don\u2019t have much information on their financial history, or on their repayment capacity, and so on.<\/p>\n

And one of the concerns expressed by the Money Advice and Budgeting Service (MABS) about this type of lending is that it could lead to a lot of customers doing what they call \u2018credit stacking\u2019. This is where they have multiple, small loans spread across multiple providers.<\/p>\n

Maybe some are BNPL loans, and maybe they have a credit card or two as well. And each of them on their own might not be worth very much or particularly hard to manage – but combined they add up to a sizable ball of debt that is a burden to keep on top of. And the risk there is that, quite quickly, people can get overwhelmed by this, start missing payments, and start seeing the penalties and interest charges mount. Which just makes escaping the situation that much harder.<\/p>\n

Which is a big risk to take for a meal\u2026<\/b><\/p>\n

\"\"<\/b><\/p>\n

Absolutely \u2013 and this is part of the concern that has been raised about this new dynamic.<\/p>\n

Because as cautious as you should be when borrowing for anything, big or small, when it\u2019s a purchase like an appliance, or even some clothes, there\u2019s a tangible benefit there. You would imagine that it\u2019s something the user will get value out of for a long time to come \u2013 long after they\u2019ve actually covered the cost of it.<\/p>\n

But if they\u2019re borrowing money to pay for a coffee and a sandwich, it\u2019s going to be gone within an hour of them taking on the debt \u2013 and yet they\u2019ll still be expected to pay for it for weeks to come.<\/p>\n

Klarna, for its part, has defended these kinds of partnerships with food delivery apps and has made the argument that people have been using overdrafts and their credit cards to pay for coffees and takeaways for decades. The chances are, it says, that they were hit with hefty interest charges and fees when they did that. Which is true.<\/p>\n

Though personal finance professionals would urge people not to use credit cards or overdrafts for their food and drink; their advice isn\u2019t to replace one type of debt with another. So it may not be the strongest argument in favour of using Klarna.<\/p>\n

But what this move by Klarna and DoorDash \u2013 and Deliveroo here \u2013 to partner up is being seen as by some market watchers is one sign of the problems that are bubbling under the surface in the economy \u2013 particularly in the US.<\/p>\n

Just like Ireland, that country has obviously gone through a cost of living crisis over recent years \u2013It was a major issue in the run up to the Presidential Election; and the price of eggs has remained a talking point in recent months. And now we\u2019re seeing the prospect of consumer prices there rising at a faster pace once again in the coming months, because of the impact of Donald Trump\u2019s tariffs.<\/p>\n

And that\u2019s led to this BNPL offer becoming attractive to enough consumers that Klarna and DoorDash think it\u2019s worth pursuing.<\/p>\n

Of course the internet has had great fun with this too \u2013 with tonnes of memes based around what people feel is the absurdity of the situation. There are lots of references to The Big Short and Wolf of Wall Street in there, talk about Taco Bell Credit Default Swaps, and one tweet saying \u2018it\u2019s 2026 and I have defaulted on my burrito debt\u2019<\/p>\n

But all that aside, finance experts feel that – if borrowing money to pay for an everyday luxury like a coffee or a pizza, and maybe even groceries, is now attractive or necessary for a lot of consumers – then there is something fundamentally wrong with the system. And things are probably only going to get worse.<\/p>\n

Are Klarna even making money on all of this?<\/b><\/p>\n

\"\"<\/b><\/p>\n

No \u2013 not at the moment at least. In fact their losses have grown considerably recently.<\/p>\n

It posted quarterly results last month, which showed that its revenue and customer base was growing \u2013 but so too was the number of customers that were defaulting on their loans.<\/p>\n

It said $136m worth of loans were lost in the three month period \u2013 which was up 17% year on year.<\/p>\n

And if even some of that growth is coming from the likes of loans for food deliveries, it puts them in a bit of a bind. Because it\u2019s not like they can go and repossess a burrito \u2013 and they\u2019re probably going to even have a hard time getting a debt collection company interested in taking on such a tiny debt, especially not in a way that\u2019s going to be very financially beneficial.<\/p>\n

It should be said the rise in defaults wasn\u2019t the only thing that fed into their costs in the period \u2013 the cost of funding those loans got more expensive, while they also started offering staff share-based payments.<\/p>\n

But the fact that they were losing more of the money they were supposedly lending out did still feed into a more-than doubling in their losses for the period, with a net loss of $99m being 110% higher than its first quarter of 2024.<\/p>\n

And those figures represented the latest in a string of bad news stories for Klarna.<\/p>\n

It recently announced it was looking to hire 700 customer service workers, having previously tried to fill those rose with AI, only to find out that the quality of their service dipped as a result.<\/p>\n

And back in April the company also announced that it was pausing its plan to float shares on the stock exchange. It blamed the volatility created by Donald Trump\u2019s tariffs as the main reason for that, but there was a feeling within the market that the company wasn\u2019t quite ready to invite the level of scrutiny that would-be investors would require.<\/p>\n

And the big risk for them and businesses like them is that if there is to be an economic slowdown globally \u2013 which is is expected \u2013 consumers are likely going to be squeezed even more than they are at the moment.<\/p>\n

That might see people pull back from buying things that they don\u2019t already have the money for \u2013 meaning they won\u2019t need Klarna. Or it could mean they buy things through Klarna and then just refuse to pay them back.<\/p>\n

And either of those scenarios would mean that the fundamentals of the business would come under even greater pressure than is already the case.<\/p>\n<\/section>\n","protected":false},"excerpt":{"rendered":"

Economists and market watchers think the world may have a new recession indicator \u2013 the fact that more people can now take out a small loan to pay for their takeaway. This relates to a recently-announced partnership between Klarna and DoorDash \u2013 which is a big food delivery service in the US. Klarna has also […]<\/p>\n","protected":false},"author":1,"featured_media":11949,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"ocean_post_layout":"","ocean_both_sidebars_style":"","ocean_both_sidebars_content_width":0,"ocean_both_sidebars_sidebars_width":0,"ocean_sidebar":"","ocean_second_sidebar":"","ocean_disable_margins":"enable","ocean_add_body_class":"","ocean_shortcode_before_top_bar":"","ocean_shortcode_after_top_bar":"","ocean_shortcode_before_header":"","ocean_shortcode_after_header":"","ocean_has_shortcode":"","ocean_shortcode_after_title":"","ocean_shortcode_before_footer_widgets":"","ocean_shortcode_after_footer_widgets":"","ocean_shortcode_before_footer_bottom":"","ocean_shortcode_after_footer_bottom":"","ocean_display_top_bar":"default","ocean_display_header":"default","ocean_header_style":"","ocean_center_header_left_menu":"","ocean_custom_header_template":"","ocean_custom_logo":0,"ocean_custom_retina_logo":0,"ocean_custom_logo_max_width":0,"ocean_custom_logo_tablet_max_width":0,"ocean_custom_logo_mobile_max_width":0,"ocean_custom_logo_max_height":0,"ocean_custom_logo_tablet_max_height":0,"ocean_custom_logo_mobile_max_height":0,"ocean_header_custom_menu":"","ocean_menu_typo_font_family":"","ocean_menu_typo_font_subset":"","ocean_menu_typo_font_size":0,"ocean_menu_typo_font_size_tablet":0,"ocean_menu_typo_font_size_mobile":0,"ocean_menu_typo_font_size_unit":"px","ocean_menu_typo_font_weight":"","ocean_menu_typo_font_weight_tablet":"","ocean_menu_typo_font_weight_mobile":"","ocean_menu_typo_transform":"","ocean_menu_typo_transform_tablet":"","ocean_menu_typo_transform_mobile":"","ocean_menu_typo_line_height":0,"ocean_menu_typo_line_height_tablet":0,"ocean_menu_typo_line_height_mobile":0,"ocean_menu_typo_line_height_unit":"","ocean_menu_typo_spacing":0,"ocean_menu_typo_spacing_tablet":0,"ocean_menu_typo_spacing_mobile":0,"ocean_menu_typo_spacing_unit":"","ocean_menu_link_color":"","ocean_menu_link_color_hover":"","ocean_menu_link_color_active":"","ocean_menu_link_background":"","ocean_menu_link_hover_background":"","ocean_menu_link_active_background":"","ocean_menu_social_links_bg":"","ocean_menu_social_hover_links_bg":"","ocean_menu_social_links_color":"","ocean_menu_social_hover_links_color":"","ocean_disable_title":"default","ocean_disable_heading":"default","ocean_post_title":"","ocean_post_subheading":"","ocean_post_title_style":"","ocean_post_title_background_color":"","ocean_post_title_background":0,"ocean_post_title_bg_image_position":"","ocean_post_title_bg_image_attachment":"","ocean_post_title_bg_image_repeat":"","ocean_post_title_bg_image_size":"","ocean_post_title_height":0,"ocean_post_title_bg_overlay":0.5,"ocean_post_title_bg_overlay_color":"","ocean_disable_breadcrumbs":"default","ocean_breadcrumbs_color":"","ocean_breadcrumbs_separator_color":"","ocean_breadcrumbs_links_color":"","ocean_breadcrumbs_links_hover_color":"","ocean_display_footer_widgets":"default","ocean_display_footer_bottom":"default","ocean_custom_footer_template":"","ocean_post_oembed":"","ocean_post_self_hosted_media":"","ocean_post_video_embed":"","ocean_link_format":"","ocean_link_format_target":"self","ocean_quote_format":"","ocean_quote_format_link":"post","ocean_gallery_link_images":"on","ocean_gallery_id":[],"footnotes":""},"categories":[19,20],"tags":[],"class_list":["post-11948","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-news","entry","has-media"],"_links":{"self":[{"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/posts\/11948","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/comments?post=11948"}],"version-history":[{"count":0,"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/posts\/11948\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/media\/11949"}],"wp:attachment":[{"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/media?parent=11948"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/categories?post=11948"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sharewatch.com\/wp\/wp-json\/wp\/v2\/tags?post=11948"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}