Thousands of shoppers who tried to pre-order the latest Microsoft Xbox were left fearing for the state of their credit scores after a bungle between high street retailers and the ‘buy now, pay later’ service Klarna left them without a console but with marks on their credit files.
Klarna – which has a slogan No Drama, Just Klarna – had partnered with GAME and Smyths Toys to let customers purchase the new Xbox Series S and X games consoles as part of an ‘All Access’ bundle.
These gave an option to spread the cost over two years, provided customers set up a direct debit and passed a ‘hard’ credit check – which publicly appear on borrowers’ credit reports
But consumers reported the retailers’ websites were down for as long as six hours when the deal launched on Tuesday, and that when they were finally able to reach the checkout, they were greeted with a message telling them ‘there has been a technical error’ after GAME and Smyths both ran out of stock.
Klarna had partnered with GAME and Smyths Toys to allow people to pre-order the new Xbox and pay for them over 24 months. But shoppers reported several problems with both websites
The farce and subsequent backlash on Twitter led to Microsoft itself intervening, with Xbox UK’s marketing chief telling customers on the social media platform they had spoken to Klarna and the retailers to try and fix the situation.
Despite being unable to purchase an Xbox – due out in November – shoppers were still subjected to Klarna’s affordability checks and even received emails informing them they had set up a direct debit with the Swedish company.
A number of shoppers who received the error message tried refreshing websites multiple times or trying to order again, although Klarna insisted this should not have led to more than one hard credit check.
But some users on the social media platform Twitter, where evidence of the problems with GAME, Klarna and Smyths Toys first appeared, reported they had multiple checks from the buy now, pay later provider on their files.
While direct debits do not impact people’s credit scores, multiple hard searches in a short period of time can damage them as they can be seen by lenders as a sign of desperation or financial stress, with borrowers frantically applying for credit.
The potential impact on their credit score caused by what one Twitter user, Dan Jenkins, described as ‘a hard check for nothing’, led some to fear they would be turned down if they tried to order the console again.
Klarna, which recently became Europe’s most valuable fintech company, valued at £8billion, offers three ways of paying for items in instalments or after ordering them, but the formal payment plan offered to those trying to pre-order the new Xbox is the only which requires a formal credit check.
Its lending practices and the suggestion it encourages predominantly younger people to spend money they don’t have have come under scrutiny over the last 24 months, with the Financial Conduct Authority set to probe ‘buy now, pay later’ lenders as part of a wider inquiry into unsecured credit.
Many shoppers who were greeted with technical problems repeatedly tried to re-order a console, despite this potentially leaving them applying for credit with Klarna several times
‘A credit check has been run on hundreds and hundreds of people’
Will Holmes, 36, from Tyne and Wear, was one shopper caught up in the problems with Klarna and Smyths Toys.
He told This is Money: ‘There are options to buy the console outright, but it seems GAME and Smyths have allowed Klarna to handle the finance side of the deal.
‘The thing that makes the deal so appealing to the consumer is that the overall cost after the two years is actually less than you pay for the sum of the parts.’ The two different Xbox models were available for £20.99 or £28.99 a month.
‘The site had been down all day for this package which they call Xbox All Access’, he said, ‘when it finally came up six hours after it went down, it allowed you to push your order through to the point where Klarna carried out a credit check and set up a direct debit for you.
Shoppers reported receiving emails telling them they had set up direct debits with Klarna, despite being unable to order an Xbox console. They were subsequently told these direct debits would be invalidated
‘You then realize they have no stock, but you still have a direct debit agreement set up in your name and have an email confirmation indicating as much.’
He added: ‘It looks as though the credit check was done in preparation for available stock but when the transaction was trying to complete the lack of stock prevented a successful completion, by which point the direct debit appears to have been set up and the credit check run.
‘Undoubtedly though a credit check has been run on hundreds and hundreds of people with no stock to fulfil their orders which will inevitably affect their credit rating.’
Customers were unable to complete orders as retailers ran out of stock, despite being subjected to credit checks by Klarna which showed up on credit files
He received another email from Smyths Toys late on Tuesday telling him those who had set up a direct debit with Klarna would be able to order a console and would not be subject to any further credit checks if they completed their pre-order within six days.
He said he was happy with the outcome and that ‘things were quickly put right’, but the farce appeared to have forced Microsoft itself to intervene.
Xbox UK’s top marketing officer Samuel Bateman tweeted on Wednesday morning: ‘We spoke with all retailers and Klarna last night to help solve the issues.’
He previously said on Tuesday evening that Microsoft was working to resolve the situation for ‘customers who have proof of their application acceptance but have not yet received email confirmation from either GAME or Smyths’.
Shoppers on Twitter reported that hard credit checks from Klarna had showed up on their credit file. Some even said they had been checked multiple times
One Twitter user, Ross Irving, responded: ‘I’ve been in contact with Smyths as they asked for, but not had anything back at all yet. Really frustrating situation, as I can’t order elsewhere if this has actually gone through. Very much in limbo.’
The credit reference agency Experian urged those worried about damage to their credit score caused by an incorrectly registered ‘hard’ check to contact Klarna and get them to remove it.
It said a single credit application should not result in more than one hard search appearing on a credit report and once again encouraged people to raise this with Klarna.
What did the companies say?
This is Money was unable to reach either GAME or Smyths Toys for comment, but in a statement posted on its website Wednesday, Klarna’s Alex Marsh wrote: ‘Yesterday the pre-order window opened for the latest Xbox and there was huge demand from thousands of gamers keen to reserve their console.
‘We at Klarna provide the financing solution for the Xbox All Access bundle available from GAME and Smyths Toys through our Financing product.
‘Throughout the day we processed thousands of successful applications. Unfortunately, the high demand meant that some consumers did experience some issues with their orders.
Xbox UK’s marketing boss stepped in after the social media backlash, telling one customer that Xbox had spoken to GAME, Klarna and Smyths to try and sort out the problems
‘A number of consumers were approved for financing but were unable to complete their orders on the retailers’ website.
‘This happened because, in response to the high demand, the retailers ran out of stock and had to close online orders whilst consumers were part way through the checkout or had just completed their credit applications.
‘We would like to reassure consumers who have received notification that they have set up a direct debit but were unable to place their order that we are working with our retailers to ensure a satisfactory outcome for these consumers.
‘Additionally, some consumers have expressed concerns about the impact on their credit scores, when they made multiple applications due to website issues.
‘When a customer applies for our financing products Klarna performs a hard credit check which can impact your credit score and is visible to other lenders.
‘If a further application is made, no further hard checks are made providing the customer details are the same. In some cases customers have seen additional quotation or soft searches.
‘These are not visible to any other lenders, just to yourself, and does not affect your credit score.
‘We recognise this has been a frustrating experience for many of our consumers. Please rest assured that we are working hard with our retailers and we are extremely sorry for any inconvenience or distress this may have caused.
‘If any of our customers are concerned, we encourage them to please contact our customer service teams.’