What Klarna Gains in the Stripe Deal and What Banks Stand to Lose | Payments Source


Klarna’s deal to offer her buy now / pay later service to Stripe merchants – a case of two of the most valuable fintechs joining forces – is the latest in a series of deals that could make the Swedish installment lender even greater force in payments.

The Stripe deal came a day after Klarna participated in a $ 100 million funding round at Billie, a German fintech that allows buy now / pay later for B2B payments. It’s also been four days since Klarna struck a deal to acquire online travel planner Inspirock from Palo Alto, Calif., To add purchasing and payment technology for travel merchants.

The range of deals Klarna has struck in a short period of time will allow it to compete with banks in a wider range of merchant services, according to Richard Crone, a payments consultant.

The partnership comes after rival BNPL companies such as Affirm, Afterpay and Sezzle also partnered with leading payment technology companies for integrations. While issuers such as American Express say BNPL does not cannibalize its credit card operations, the service is likely to be positioned more competitively in the future.

“BNPL is already offered alongside credit cards at a large and rapidly growing number of merchants,” said Ginger Schmeltzer, strategic advisor for Aite-Novarica.

Square recently agreed to acquire Australian installment lender Afterpay for $ 29 billion, allowing Square to quickly expand point-of-sale lending to its merchant base. Square’s deal also allows it to compete better Pay Pal, which entered into a $ 2.9 billion deal to acquire Japanese company Paidy to bolster PayPal’s Pay in 4 installment product. And Amazon in August struck a deal with To affirm to enable the e-commerce giant to offer buy now / pay later alongside traditional credit options from JPMorgan Chase, Visa and Synchrony Financial.

These fintech agreements are moving away from the banks like Barclays and Capital One Financial who are building their own presence in the BNPL market.

The threat these buy now / pay later partnerships pose to banks is different from the revolving credit narrative alternative often pushed by buy now / pay later companies themselves. If a brand like Klarna, which is well known to consumers, and Stripe, which is popular with merchants, can attract new users, those consumers and merchants can look beyond banks for short-term credit.

While some BNPL options allow consumers to pay off the loan to a credit card, Stripe will be Klarna’s “preferred partner” for payments, meaning that once Klarna funds the initial purchase / pay more. later, Stripe will process refunds from the consumer. Klarna says this will translate to around 90% of her payment volume in the United States and Canada through Stripe.

“BNPL poses a threat to banks, but more because of the lost opportunity than a challenge for revolving consumer credit, which in the US market is 1000 billion dollars“said Brian Riley, director of credit counseling at Mercator Advisory Group.

Most buy it now / pay later purchases are between $ 100 and $ 250, according to Riley, adding that banks that opt ​​to buy now / pay later see it as an introductory service. Fintechs that have come to be known as buy now / pay later providers hamper this banking strategy.

“BNPL credit card based loans can show credit experience with the lender. This can lead to more products, higher card limits and broader relationships,” Riley said. Issuers, he said, “must expand their networks to increase their loan portfolios.”

Access to B2B technology potentially supports a payment type that is the “next phase” for BNPL and other digital payment types, according to Crone.

“B2B is difficult to solve. It requires integration into e-commerce platform and enterprise resource platform. Klarna will have a large consumer business and will be able to offer a whole new set of BNPLs for B2B. No one has really done that yet. . “

The travel partnership allows Klarna to specialize in a specific industry for BNPL, a key development as its service expands to more diverse payment types. American Express, for example, earlier this year launched a BNPL option specifically designed for travel.

“Vertical specialization in merchant services is essential. The way you serve supermarkets is very different from restaurants or travel providers,” said Zil Bareisis, head of Celent’s retail banking practice. “Bringing BNPL to specialist services such as travel or B2B requires a deep understanding of the specific sticking points in those industries. “

In an email, Stripe’s public relations office said, “Flexible payment options are important.… Stripe users around the world have found that flexible payment options like Klarna increase conversions and the value of orders, while also attracting new customers The PR office said Stripe does not offer BNPL directly and has similar partnerships with Afterpay and Quadpay.

Klarna did not provide a comment before the deadline. As part of the deal, Klarna will make its buy now / pay later options available to internet businesses using Stripe in the US and 19 European countries. Stripe serves roughly 3 million online merchants globally, with around 47% of its business coming from the United States, while Klarna has over 11 million consumers in the United States.

“Consumers and traders have decided that BNPL is here to stay,” Schmeltzer said. “Industry players need to ensure that they are supporting BNPL both directly through their own products and indirectly through major brand players like Klarna, Affirm, Afterpay and others that consumers and merchants have taken up. ‘usual to use for installment purchases.

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