Sebastian Siemiatkowski. Image: Klarna
The European fintech unicorn will give Irish users the option to spread payments with almost any online retailer.
Swedish fintech Klarna has brought its buy now, pay later (BNPL) services to Ireland.
Co-founder and CEO Sebastian Siemiatkowski said the Irish market is “really exciting” for the company due to the popularity of debit cards. Over the past five years in Ireland, the number of card payments (including credit cards) has grown by 79pc, reaching 1.36bn transactions in 2020.
“As the older-style financial institutions exit the market, we’re here to create more competition, which is in the best interest of the consumer,” said Siemiatkowski.
With Ulster Bank and KBC Ireland departing the Irish market, just three traditional banking institutes remain: Bank of Ireland, AIB and Permanent TSB. Ireland, however has been welcoming to digital challenger banks, with Revolut supporting around 1.3m users in Ireland and N26 growing a base of 200,000.
A ‘shopping revolution’
While classed as a challenger bank, and regulated in Ireland by the Central Bank, Klarna differs from other European fintechs in that its primary function is to enable shoppers to spread their payments without charging interest or fees.
“Traditional high-cost models like credit cards are built on charging interest and late fees to the rest. That’s why we offer flexible, transparent and fair payment options,” said Siemiatkowski.
Where Klarna makes money is through its retail partners, which are charged for use of the service. While the Klarna app can be used to process a payment with just about any online retailer, businesses that sign up as partners can integrate Klarna on their own site and even offer BNPL in stores.
‘This sort of flexibility, convenience and financial control that paying with Klarna brings is the future of retail’
– LEE MCNAMARA
What retailers stand to gain from the partnership is access to Klarna’s network of 90m users worldwide. The platform is currently processing 2m transactions per day and its 250,000 retail partners include H&M, Sephora, Ikea, Samsung, ASOS, Nike, Peloton and Expedia Group.
Its first partners in Ireland include Gym + Coffee, Perspective, Yummie, Cult Beauty, Greenes Shoes, Luna by Lisa and Yours Clothing.
Gym + Coffee e-commerce manager Lee McNamara said that offering alternative payment options will make it easier for consumers to make that crucial purchase decision. “This sort of flexibility, convenience and financial control that paying with Klarna brings is the future of retail,” he said. “We’re excited to be at the forefront of this shopping revolution.”
The revenue model has worked enough to make Klarna one of the world’s top private fintechs. A bumper $639m funding round this summer saw the company’s valuation reach $45.6bn.
Colin Creagh will drive business development for Klarna in Ireland. “We’ll be working with our Irish retailer partners to help them access a global marketplace,” he said. “With coverage in 17 markets across three continents, we can accept payments from almost every country in the world, unlocking huge growth opportunities for our partners.”
Creagh identified Ireland as a “key European market” for Klarna, thanks to its digital adoption. “Ireland has long been part of our expansion strategy in our mission to offer safer, more sustainable payment options to customers around the world,” he added.
How to use Klarna to buy now and pay later
Irish consumers using the Klarna app will be able to access and browse online stores. Shopping via the app will trigger a pink ‘Pay with K’ button when it comes to making purchases.
This creates a one-time digital payment card for the value of the purchase. The details from this one-time card can be entered in the checkout process just as you would a regular debit or credit card number.
Using this process, shoppers will be able to split their purchase price into three equal monthly payments. Once the order is confirmed with the retailer, the first of the three payments will be taken, with the others following 30 days and then 60 days later. These payments are processed automatically, but the user is notified in advance each time.
If funds are not available when a payment is due, Klarna will retry in seven days. Payments not made in the 30-day timeframe will automatically be added to the next scheduled payment, with the user notified each time a payment has failed.
In some cases, users may have the option to complete a payment earlier. In others, they may have the option to ‘snooze’ a payment or extend the due date. However, missed or delayed payments can be a factor in future payments being refused.
Because of the lack of fees and interest charges, Klarna’s business model relies on its users paying back on time. For this reason, an eligibility assessment may be conducted, which involves a ‘soft search’ with a credit reference agency that Klarna says does not affect a user’s credit score.
However, even if users fall behind on payments, Klarna continues its commitment to no interest or fees.
The Klarna app also includes features such as wish lists that can be shared with friends and family, and push notifications for price drops.
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