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UK consumers can now use Klarna’s buy now, pay later (BNPL) service on a physical credit card for online and in-store purchases.
Swedish fintech Klarna has announced the launch of a physical card that enables consumers in the UK to use its Pay in 30, which allows consumers to pay for goods and services up to 30 days after purchase.
The Klarna Card, which is a Visa credit card, effectively enables cardholders to use the firm’s BNPL service for in-store purchases, in addition to online shopping. Later on, the firm plans to add additional payment options to the card.
“For online purchases where credit makes sense, buy now pay later has become the sustainable alternative with no interest and clear payment schedules. The launch of Klarna Card in the UK brings those benefits to the offline world, giving consumers the control and transparency of BNPL for all of their instore purchases.” Alex Marsh, head of Klarna UK, said in the announcement.
The physical card has proven a great success in other countries, such as Germany and Sweden, and has reached more than 800,000 consumers globally.
In the UK, the Klarna Card will be made available progressively, reaching all eligible consumers in the upcoming months, the company said, adding that the card already has a waitlist of 400,000 consumers in the UK.
New (or old) way to credit
Although Klarna’s physical card effectively works like a charge card, the Sweden-based fintech has said it provides a fairer and more sustainable alternative to traditional credit.
Charge cards, often associated with American Express or Diners Club, are popular in Europe, but less so in the UK where consumers have traditionally favoured revolving credit card products.
However, Klarna has added a few features which could potentially be a hit with some consumers.
The Klarna Card is fundamentally different from traditional credit cards in many ways, a Klarna spokesperson told VIXIO.
In a traditional credit card arrangement, consumers who do not pay off their bills are charged with an interest fee following a limited interest-free period.
Currently, around 50-53 percent of the outstanding credit card balances in the UK are bearing interest, meaning that half of the credit card users end up paying more for their purchases than the original purchase price.
By contrast, Klarna does not charge interest or late fees to consumers, the spokesperson stressed. Instead, in case of late payment, Klarna simply freezes the card until the consumer settles the bill.
Another key difference from credit cards is that unpaid bills on the Klarna Card cannot become a rolling debt because the payment date is tied to the date of the purchase.
“The card is designed for people who put most of their spend on a debit card and occasionally need the flexibility of credit,” Klarna explained.
In addition, the new card provides a higher degree of flexibility with regard to the amount of credit consumers can get.
Although the spending limit on a traditional credit card hardly changes throughout the years, Klarna re-evaluates its users’ spending limit almost on a daily basis, taking into account the consumer’s financial situation and repayment behaviour, the spokesperson added.
Expanding customer reach
The issuance of the physical Visa card represents a significant step for Klarna in the UK.
Until now, consumers could use the firms BNPL services where Klarna had an agreement with the retailer, or at any online merchant through the Klarna app. The Klarna-issued Visa card effectively expands the fintech’s coverage to almost all merchants, online or in-store, that accept Visa.
Although Klarna does not charge consumers any interest or late fees on its new physical card, the spokesperson said it will receive interchange fees on the card transactions at merchants.
It also represents another step in the firm’s shift in focus to consumer-facing products.
Historically, Klarna has regarded its core business as the services it offers its merchant customers.
According to some BNPL providers, the service can increase a retailer's conversion rate and incremental sales 20 to 30 percent more than other payment options. In exchange for a successful sale, the merchants pay Klarna a certain fee for every purchase a consumer buys using Klarna’s BNPL service.
The development of many of Klarna’s consumer-facing solutions has partly been driven by the need to improve its proposition to merchant customers, helping to connect them with an active consumer base.
However, in recent years it has taken a more active strategic shift to directly sell services to consumers.
Since acquiring a Swedish banking licence in 2017, the fintech has gone on to launch savings products in Sweden and deposit accounts in Germany.
This licence also enables Klarna to offer some of its banking-like services in the UK, including issuing a credit card. In addition, Klarna’s financing products are regulated products in the UK and the fintech is in regular discussions with the Financial Conduct Authority (FCA), the spokesperson said.
The fintech is currently operating in the UK under the FCA’s temporary permission regime and does not expect any regulatory challenges to obtaining a UK license.
It will be more like “paperwork,” not like an uncertainty or “road bump,” Klarna said.
Although Klarna’s vision includes a better way to “shop, pay and bank”, do not expect a Klarna Bank in the UK anytime soon.
Klarna’s shopping and payment services are well developed in the UK, the spokesperson said, but they do not offer banking products in the country yet and it is not in the company’s plans in the short term.
