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Klarna is stepping up attempts to position itself as a digital bank as the Swedish fintech looks to diversify away from its flagship “buy now, pay later” loans ahead of its second attempt at an IPO.
The company, known for loans offered to online shoppers at the point of purchase that are paid back in several interest-free instalments, has in recent weeks launched new products designed to bring it more in line with digital banks such as Revolut and Chime.
The move comes as what was once Europe’s most highly valued start-up faces growing pressure over the resilience of its business model in the face of a potential consumer downturn.
Klarna must also prove to investors that it can be sustainably profitable as it prepares a second attempt to list in the US after earlier plans were thwarted in April by market turmoil linked to the US trade war.
“Klarna’s pivot is not just about growth. It’s really survival in a market which is no longer a defensible position,” said Liam Evans, managing director at PwC.
Klarna in June introduced a US debit card in partnership with Visa that will allow customers to pay for their purchases upfront rather than split the cost into instalments. The new, more traditional cards will be linked to deposit accounts covered by the US Federal Deposit Insurance Corporation.
This month it launched a mobile offering set to run on AT&T’s network following similar moves by neobanks Revolut and Nubank. Klarna previously launched similar savings and deposits products in Germany but it is now following suit in its largest market, the US.
The fintech, which has had a Swedish banking licence since 2017, has also started to refer to itself as being primarily a neobank in recent weeks. While it has touted its banking ambitions in the past, it primarily described itself as an “AI-powered global payments network and shopping assistant”.
“With mobile plans we’re taking [saving customers time and money] one step further, as we continue to build our neobank offering,” co-founder and chief executive Sebastian Siemiatkowski said in a statement.
Klarna’s pivot away from being a pure BNPL player has accelerated since the company was forced to pause its IPO plans in the wake of Donald Trump’s “liberation day” tariff announcements in April that upended markets.
Since then, US-based Chime successfully listed in June, fuelling renewed optimism for the sector. Investors saw Chime’s IPO as definitive proof that digital banks have emerged from a fundraising drought that started when central banks raised interest rates following Russia’s full-blown invasion of Ukraine.
Sentiment also improved after digital banks Revolut and Monzo boosted their valuations to new heights, with Revolut becoming Europe’s highest-valued start-up last year.
“Klarna would have recently been keeping a close eye on Chime’s IPO success,” said Evans, adding that diversifying its offerings was a logical way for Klarna to re-energise its appeal to investors.
Klarna’s core business of extending short-term loans is attracting growing scepticism since the lossmaking fintech disclosed that its customer credit losses had risen by 17 per cent year-on-year in the first quarter.
However, Klarna’s credit-loss rate as a percentage of its total payment volumes remains relatively low at 0.54 per cent, up from 0.51 per cent a year ago.
The start-up’s model of offering low-value loans to customers who may struggle to borrow elsewhere has sparked a backlash from consumer advocates, fuelling fears that it will be forced to tighten its lending criteria to avoid a rise in defaults, a move likely to slow its growth.
Fico, the company behind the US’s largest credit scoring provider, on Tuesday said it would start including buy now, pay later loans when calculating consumers’ credit scores. The UK this year announced plans to regulate the sector and require companies such as Klarna to perform affordability checks before offering loans.
The protectionist tariff policies that halted Klarna’s IPO in its tracks could also hurt Klarna in other ways. The company, which has tailored its marketing to Gen-Z shoppers, has been heavily reliant for its growth on fast fashion retailers including Chinese ecommerce websites Temu and Shein, which are at risk of being hit by US import duties.
One person familiar with Klarna said the exposure to fast fashion was overstated as the company had partnerships with more than 700,000 retailers including Airbnb, Uber, Sephora and Walmart.
“If you’re doing ‘pay in four’ and fast fashion is a big part of it and those Chinese retailers are a big part of it, that’s a problem,” said Dan Dolev, a payments analyst at Mizuho.
Klarna declined to comment.
https://www.ft.com/content/c0b696e0-4453-4f2a-a762-ba1f33f958a7
