Klarna’s entry into the UK’s open banking arena should be seen as an evolutionary move. For a decade now, the Swedish buy now, pay later giant has been trying to elbow its way into the space.
This week, Klarna announced that its UK customers can bypass external card networks and pay directly from their bank accounts. This move offers open banking services to Klarna’s 18 million UK customers and 32,000 retailers, in a country where only five million people are currently using open banking services each month.
Klarna initially got into the open banking space in 2014 through its acquisition of Sofort, a direct bank-to-bank payment service in Germany, which has since expanded to serve several European countries.
In 2022, Klarna introduced a separate brand, Klarna Kosma, as its own open banking arm, only to drop it after less than 18 months. At the time, a Klarna spokesperson said that Klarna Kosma had experienced tremendous growth since its launch back in April 2022. But nevertheless, Klarna decided to shut it down in order to bring it under the flagship corporate umbrella.
This recent launch might be more of a relaunch and strategic realignment rather than a completely new venture. Klarna has already been offering open banking options, such as Pay Now, which is used by 20 million customers globally each month. The company plans to extend similar open banking functionalities for its Pay in 30 and Pay in 3 options later this year.
Taking On the Competition
Many observers have noted that this move positions Klarna to take on Visa and Mastercard in the open banking space. Apple has also been testing open banking features for its UK Apple Wallet users, adding another dimension to the competitive landscape. Additionally, Klarna will be competing with the British government and its GOV.UK Pay service. But as Ben Danner, Senior Analyst for Credit and Commercial at Javelin Strategy & Research, points out, it also is a broadside against the American-based Affirm, one of Klarna’s chief rivals in the buy now, pay later space.
“Being able to pay Klarna directly through a bank account rather than a debit card allows Klarna to bypass the card networks and save on fees,” Danner said. “Direct bank account connection also places Klarna in a better position to compete with Affirm’s physical card product, which already enables consumers to use their linked bank account to pay.”
