How Klarna's marketing mishap cast a shadow on a fintech darling

Swedish point of sale credit company Klarna put itself in the awkward position of apologizing and trying to explain marketing emails to surprised and angry consumers, a misstep for a firm whose credit card alternative has found major traction during 2020’s crises.

The troubles came to light when consumers started complaining on social and mainstream media about receiving marketing materials despite never doing business with Klarna, with some asking “who sold” their information to Klarna.

It was rare bad press for a fast-growing company. Point of sale credit firms, or buy now/pay later companies, have expanded quickly this year as consumers look to avoid revolving credit for larger purchases and find comfort in the similar installment terms that companies like Klarna, Affirm, Splitit and others offer.

Some of these firms have reported triple-digit growth, often in just a few months, and have drawn hundreds of millions in venture capital to fuel international and product expansion. Klarna has become one of the sector's most recognizable brands, drawing in investment from Ant Financial and picking up $650 million in equity funding in September that boosted its valuation to more than $10.6 billion.

But for at least a few days, the conversation shifted from a business category on the rise to questions about how a company is using consumer information, an issue businesses usually don’t like to discuss — at least in reaction to claims of misappropriation.

“Marketing 101: don’t make your prospective customer angry, and it would appear that’s what happened with this effort,” said Thad Peterson, a senior analyst at Aite Group, adding it’s not a great idea to send unsolicited emails to people who have some chance of recognizing the source, and it’s really not a good idea to send it to consumers who have no idea how they got on the list.

“Consumers are particularly sensitive to solicitations from financial services companies given the visibility of fraud related breaches in retail over the past few years,” Peterson said.

Klarna’s issue appears tied to consumers not being fully aware of Klarna’s other functions beyond its more public-facing checkout offering. Klarna did not answer questions from PaymentsSource beyond referencing a corporate blog post that mentions both opt-in and passive receipt.

Klarna’s statement apologizes and says some people received its weekly newsletter “by mistake,” though it also says the emails were sent to people who used one of Klarna’s products or services, adding people who use Klarna agree to the company’s terms and conditions and its privacy notice. Klarna further said that as of Tuesday, the company was still investigating how the newsletters got shipped.

“Please rest assured, you have not been added to a marketing database,” the statement said. “In accordance with our internal policies you will not receive any further newsletters unless you opt-in or download our app at a later date.”

Klarna said some retailers use Klarna’s checkout technology to process credit and debit card transactions for the retailers. The data is used to help Klarna screen for fraud and help retailers manage shipping in line with Klarna’s terms and privacy conditions.

The "terms" and "privacy" conditions could be part of the problem. Despite growing concerns among consumers about data breaches, theft and privacy violations, very few people read terms of service notices on websites. A York University study found a quarter of respondents hit "join" to sign up for a fictitious social network despite the terms requiring them to give up their first born child and stating their data would be shared with the NSA. And 98% of those who did read the terms of service did not remember seeing the "first born" clause.

"It's not surprising that marketing communication was sent that was unexpected," said Krista Tedder, head of payments for Javelin Strategy & Research, which reports a majority of Americans do not read terms and conditions, which include marketing opt-ins with partners. "With more digital accounts consumers can expect this type of communication more frequently."