Swedish fintech company Klarna announced a partnership this week with Global-e citing major expansion plans in the UK, France, Italy, Australia, Spain and the US. The firm will now extend its payment solutions to all merchants selling internationally via Global-e’s cross-border platform.
Klarna is a buy now, pay later (BNPL) enterprise that has made progress in the e-commerce sector. It is the brainchild of Sebastian Siemiatkowski, Niklas Adalberth and Victor Jacobsson. Klarna was founded in 2005 and offers products and services to consumers and retailers within payments, social shopping and personal finance.
The fintech firm is not shy with sharing the stats. A sign that things are generally going well. Klarna is valued at over $45.6 billion (£33.1 billion) and processes more than two million transactions a day. It works with more than 250,000 merchants and has 17 core markets.
While Klarna operates in the UK, it is certainly an internationally-minded entity. It made its recent entry into the German market and describes itself as Europe’s highest valued private fintech company and the second highest worldwide.
The partnership with Global-e is the latest step as their cooperation started in 2017; when the duo started working together in the Netherlands, Finland and Austria. The contract might open up some new avenues for Klarna after its Money Management Pulse study pointed out a potential market in the UK. Owing to the pandemic and social distancing measures, most consumers in the UK face difficulty using “traditional” digital payment methods. COVID has marked the shift from traditional, in-person brick-and-mortar stores to e-shopping and home deliveries. Klarna feels it is the right time to prosper with its BNPL service. The company adds that the UK has saved £76 million in credit card interest in 2020.
Moreover, if the latest partnership moves forward, Klarna might strike a deal with Global-e’s international retailers, including Marks & Spencer, Harvey Nichols, Hugo Boss, Forever21, Skims and Anastasia Beverly Hills.
Klarna’s UK Rivals
The fintech company is facing competition in the UK from such firms as PayDock, PayPal, Clearpay, Payl8r and Laybuy.
PayPal has its Pay in 4 installments solution. The move comes after the BPNL sector recorded a surge of 39% from last year.
New-Zealand based Laybuy has just partnered with EasyJet and Booking.com to offer BPNL for leisure activities for UK residents. Through Laybuy, users can pay in six installments at various brands, including Asos, Amazon and Marks and Spencer.
Payl8r in Manchester has raised £40 million from Conister Bank and has a valuation around £1 billion. Payl8r says it has experienced a record surge of 334% in the last year itself.
Progression Plans in the UK
The UK is the second largest European economy and Klarna has made it clear that it sees the nation as valuable. The firm has expanded its Manchester office and in May said it was planning a new headquarters in London. It is also looking to double its staff by the end of 2021. With over 13,000 retailers and 14 million shoppers, Klarna UK thrives on the possibility of dominating the market scenario.
The company has already signed a deal with Macy to offer the BNPL solution exclusively in all its stores. Moreover, Klarna acquired Nuji, a UK-based marketplace, last year for an undisclosed sum. In July, Klarna bought HERO, a social shopping platform. Again, the financial terms of the acquisition were not disclosed. It appears that it can be shy with some stats.
Klarna has enjoyed growth and some may view this as a two-way street that can potentially benefit the country’s economy. The pandemic has highlighted the urgency for more flexible ways of working. Klarna seems to offer what the UK requires – easy payments, the will to change shopping trends and a trust factor.
In July, Klarna launched a £3 million Small Business Support Package to help UK-based SMEs recover from the pandemic. The philanthropic gesture might help the small businesses recover and bring potential retailers and consumers to Klarna’s doorstep.
The Downside of Klarna’s BPNL Strategy
There have been some blips on the way.
Klarna was accused of a data breach in May. The firm issued a statement on the matter and said its app had a bug that affected 9,500 of its app users. The bug led to random user data being exposed to the wrong user when accessing the user interfaces.
Its BNPL approach is also not without its critics – and can be seen as a way of seducing millennials into buying products they can’t afford. With consumption levels beyond reach, most consumers may experience a debt trap. The issue has already been highlighted by Financial Conduct Authority (FCA), which conducted a review. This recommended regulation and strongly criticised the existing BPNL mechanism.
Enterprises unknowingly may exploit the psychology of impulsive shopping to attract vulnerable users. An individual’s instant gratification and impulse are easy to abuse when given a chance of unlimited spending in deferred modes.
The company had fought back against criticism with the launch of KlarnaSense to encourage mindful shopping. Through KlarnaSense, shoppers will be conscious of their actions by asking themselves three questions before checkout: “Do I love it? Will I use it? Is it worth it?” The company aimed to strengthen consumer decision-making with the launch.
Some may believe it is unviable for the UK to implement a protectionist policy against BPNL. Others may think that it is vital for fintech companies to put checks and mechanisms in place so customers are treated fairly, especially those struggling with repayments and vulnerable to impulsive shopping.
Finally, it’s worth noting that Klarna’s rapid expansion plans have come at a cost. In its Q2 results, operating loss increased rose from SEK 89 million (£7.5 million) a year earlier to SEK 965 million (£81.3 million) due to the doubling of credit losses.