"The product can encourage people to spend beyond their means and leave them unprotected if things go wrong"

Alice Tapper, Go Fund Yourself

Good morning and a very happy new year to you all!

With a new year come new ideas, new goals, and perhaps even a dose of optimism. Whilst we watch on in disbelief at the continued restrictions on society, we keep in mind that hardship is a known driver of innovation, so who knows what might happen in 2021? FinTech startups claiming to be in some way pioneering, whilst in reality being old ideas dressed up differently, is so last decade. Without further ado, let's get back to that blue-sky thinking...

In the news last week:

Perception is reality, so the saying goes. Klarna markets itself as a payments provider, which on the face of it, it is. Options are given to its customers at the checkout to pay within thirty days or in four instalments, with Klarna making the payment there and then to the merchant. The news that Klarna will now start communicating with credit agencies will have raised some eyebrows.

Klarna fundamentally provides a credit service but does not market it as such. The fact that its service is a sort of universal store card in many countries removes the immediate hassle of checking your own affordability, so to a point it can smooth cash flow, which in turn makes the purchase decision much easier. Nevertheless, it is well documented that easy access to credit combined with unforeseen events can lead into a debt trap.

By communicating with credit agencies, Klarna will be influencing people's credit scores, which are defined by the agencies using many sources, and used by credit providers to assess a customer's risk profile. One of the most well-known in the UK, Experian, has recently started acting as a credit broker as well, proving the point that credit provision is a good business.

We therefore have a conundrum. Whilst credit is big business, especially when times are tough, it is a known contributor to social problems. It is a fine line that firms like Klarna are walking, and the fact that it prefers to be seen as a payments provider rather than a credit provider might be viewed as suspicious by some, such as Go Fund Yourself. By the way, does anyone remember Wonga?

Technology has the power to transform our world for the better, and has often been touted as the bringer of fairness. When coupled with finance it is not always so clear how this will be achieved, so messaging becomes of paramount importance. We at C-Innovation do not claim to hold the moral high ground, but we are always vigilant about appearances, especially in a crowded marketplace, because misperception is a powerful downward force.

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