Klarna takes on UK credit card providers with feature that breaks up online payments

Swedish fintech Klarna has introduced a feature in its app that will allow its UK users to break up the cost of online purchases at any online retailer.

Customers in the UK can now use the feature to pay in three monthly instalments and will not pay interest. This is available at any online retailer, even if they are not a Klarna partner.

The feature was previously introduced in Sweden, Australia and the US, where it has been used nearly 13 million times.

The offering puts Klarna in direct competition with credit card providers in the UK.

Sebastian Siemiatkowski, Klarna’s CEO, said the service removes charges, such as high interest. “We believe that no one should ever have to pay credit card fees or high interest rates and now, thanks to our new in-app shopping feature, they don’t have to,” he said.

“Shoppers now can interact with their favourite retailers without having to leave the Klarna app, to create a smooth, safe and frictionless shopping experience.”

The Stockholm-headquartered fintech started life in 2005 handling online retailers’ credit risks and allowing consumers to pay for their online shopping after receiving the goods. It later expanded, using various payment methods for e-commerce, and has reached unicorn status, being worth more than $1bn.

Klarna also offers merchants functionality that they can, in turn, offer to their customers when paying for products and services. This includes paying for goods in instalments with no interest charge.

Ron van Wezel, senior analyst at Aite, said the option to pay later is becoming popular. “Commerce platforms give customers this option to increase conversion,” he said. “For instance, a consumer may be on the road and want to order things, while not having time or the appetite to fill in card details on a mobile phone. He or she will then be able to pay at their leisure later via desktop or tablet.”

Van Wezel said the pay-later option is focused on convenience, and is different from a credit card facility, which is really consumer finance-related. The Klarma offering, now available in the UK, combines the two, he said. “The Klarna option to pay in instalments without interest, looks like a hybrid between pay-later and providing a credit facility. It is certainly interesting and a new challenge for credit card issuers.”

Another advantage is the fact that Klarna is offering account-based payments and therefore bypassing the card networks, he added.

Klarna, which received a full EU banking licence from Swedish financial services regulator Finansinspektionen in 2017, has spread its business and expanded its portfolio. The company has about 3,000 employees, most of them based in Stockholm.

Fintech entrepreneur Matthias Kroener, who founded early challenger bank Fidor Bank in Germany, said Klarner is developing into a good model for a new bank. “It combines great technology and its unique e-commerce understanding,” he said.