Klarna, Apple, & Debt Collectors

The great expansion of debt has been a major consequence of the lax monetary policy of the central banks. Interest rates have been kept too low for too long allowing consumer debt to expand too fast, particularly amongst those most at risk when the economies turn down and when interest rates rise. The housing debt crisis in 007 and 2008 was a great example and now Lagarde and Powell appear to have learnt nothing. Consumer and mortgage debt is spiralling while inflation is raging at levels only seen some 50 years ago!

Klarna is one of the largest consumer lenders with Swedish roots. It is one of the largest FinnTechs that claims to be a great innovator that enables ordinary people to buy things now, rather than having to save to buy later!

“Bold moves defy expectations – unlock you growth potential” are the words on their above advert from the Financial Times that shows an expensively dressed lady slouching carelessly on a chair with spaghetti sauce about to fall all over her prim white clothes. 

We could also explain this advert as showing a rather indolent and possible drunk person taking stupid risks to spoil expensive clothes when eating very basic food! 

This interpretation of the advert in fact sums up nicely what Klarna is really doing. The company is just offering buy-now-pay-later” services (ordinary consumer finance) which has been around for decades, if not centuries. It may offer an interest free service for small short-term loans but the consumer is paying one way or another through elevated prices with the merchant. Merchants are charged some 3%+ for this service. There are no free lunches in finance. It is no surprise that their biggest client segments are young people and that Klarna is not making any profits like many others “innovators” like Wolt, DoorDash and many other wannabe technology giants! It 2021 Klarna’s revenues were $1.4 billion and “profits” were $730 in losses!

Apple has now decided to jump directly into the buy-now-pay-later business for consumers who want to buy their products. Folks on good salaries can afford to buy their phones and laptops, but they are also popular as status symbols with young adults who probably are stretched to afford such expensive toys.

The reality is that most of us do not need shiny golden phones that cost more than €150 to €200. There is little reason to spend  between €1000 to €1400 for an iPhone when it offers no significant additional features that most young people need for school or for starting their careers. Most pensioners have no idea how to use a new smart phone, yet they are sold plenty of 5G phones.

People of low incomes like students, pensioners and those starting careers could also benefit from the really cheap mobile phones like the Nokia 210 or Nokia 30 based on operating systems like Nokia S30+ or KaiOS, another good operating system based on open source Linux. 

Well-functioning phones, like this red Nokia 210, using such operating systems cost around €30 and have most of the heavily used apps and have great battery life. The battery life is actually around a week between charging! Such phones should be regarded as serious contenders for being used not as third-world trash, which appears to be the thinking behind the operators who are hooked on the large profits from selling over-priced “smart” phones.

However, it takes time for lower cost products to come to the market – it has taken LIDL years to gain a 10% foothold in monopoly-loving Finland’s retail market where Kesko and S-Group reign like two kings in their stone castles.

The biggest winners from consumer debt in bad markets are the debt collectors – they always coming knocking on your doors if you do not pay up, unless of course, you are super rich…

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