Klarna Card "makes sense" amid feverish competition in buy now, pay later sector

Klarna’s launch of a credit card in the UK “makes sense” amid a feverish buy now, pay later market, while more big banks entering the fray could shine a light on regulatory standards, experts say.

Klarna last month announced the launch of a Klarna card, a Visa contactless credit card which means users can delay payments on purchase, in-store and online.

Previously, shoppers have only been able to use Klarna's service when buying purchases online.

The interest-free Karma card, which will initially allow shoppers to pay back within 30 days but won’t help the credit score of those who pay back on time, attracted a 400,000 strong waiting list.

The card is already live in Sweden and Germany where, according to Klarna’s latest annual report, volume growth of the card totalled 137 per cent year-on-year in Sweden and Germany.

The launch of the card by Klarna comes amid a booming buy now, pay later sector in the UK: more than 17 million UK customers have now used a buy now pay later company to make an online purchase, according to industry data.

Klarna has seen its customer base doubled to 15 million since early 2020 while companies like Clearpay and LayBuy are also expanding fast.

Furthermore, credit card companies like American Express are pushing further into buy now, pay later sector while  Santander is also entering the sector.

Meanwhile, rival fintechs Monzo and Curve moved into the sector last year.

One expert says Klarna’s move to launch a card “makes sense”.

Kieran Hines, an analyst at Celent, told AltFi: “Buy now, pay later is becoming a bit more saturated, more competitive, so it makes sense logically to try and capture a greater share of customer spending.”

He says Klarna will “capture more opportunities”, as a Visa card is widely accepted by retailers, unlike before where Klarna customers could only spend at retailers who had a partnership with the Swedish fintech.

The new card also gives Klarna another string to its bow amid a sector, which is facing a regulatory clampdown. New rules are likely to come into force later this year or in early 2023, which Klarna and rivals have said they would welcome.

As more big banks enter the buy now pay later sector, some are wondering if it could drive up standards across the sector. 

Hines added: "If it has the impact of driving up lending volumes then I guess it would strengthen the argument for greater clarity over the regulatory framework.”

But he noted that the arrival of big banks would not change the regulatory direction of travel.

Russ Shaw, founder of Tech London Advocates and Global Tech Advocates, said moves by incumbents banks into the buy now, pay later attested to the strength of the fintech industry. He told AltFi: “The launch of Santander’s new buy now, pay later service Zinia is testament to the quality of fintech products currently on the market and the strength of the wider industry. 

“Klarna and others have revolutionised the consumer lending space - it was only a matter of time before incumbents like Santander took notice and adapted their product offering to rival the new players on the block. “Ultimately, large banks moving into buy now, pay later can only be a good thing for consumers, with greater competition leading to improved product offerings. As the market continues to expand, it makes sense that tighter industry regulation should follow.”