Buy now pay later: Swedish group Klarna takes on Afterpay

Swedish buy now, pay later group Klarna is confident it can knock local market leader Afterpay off its perch.

Klarna Australia managing director Fran Ereira

Swedish buy now, pay later group Klarna remains confident it can knock local market leader Afterpay off its perch, despite the COVID-19 pandemic disrupting its launch in January.

Klarna Australia general manager Fran Ereira said 160,000 consumers had downloaded the Klarna app, a take-up rate which was “slightly behind expectations”.

“But yes, we remain absolutely confident we can win (in Australia),” Ms Ereira said. “We’ve been doing this for 15 years and we have a global footprint, with 85 million customers and 205,000 retailers.”

Klarna, which operates in 17 countries, chose for the first time to enter a new jurisdiction in partnership with a large bank, striking a 50:50 joint venture with Commonwealth Bank in Australia, New Zealand and Indonesia.

CBA’s customers can access Klarna through the bank’s app, paying by instalments for items available on global websites.

After announcing an initial $US100m investment at its 2019 full-year result, CBA lifted its stake from 1.8 per cent to 5.5 per cent by investing an additional $US200m.

Like Afterpay, the Klarna model mostly relies on merchant fees. With both companies fighting a pitched battle for dominance in the key US market, Klarna chief executive and founder Sebastian Siemiatkowski said at the launch in late January that high merchant fees in Australia were “unsustainable”.

“I think if you want to build a long-term successful business, you’ve just got to genuinely have your customers’ best interests at heart,” Mr Siemiatkowski said.

Ms Ereira echoed those sentiments, saying Klarna’s fees were “definitely below” those of Afterpay, which spiked 25 per cent this week on news that Chinese fintech giant Tencent had bought a five per cent stake.

“Australia is a highly competitive and mature market in buy now, pay later,” she said. “But merchant fees are unrealistically high, and we believe that our approach of ‘shop when you’re ready’ has not been seen before.

“We support our retail partners whether their products are on sale or at full price.”

The COVID-19 pandemic hit only three weeks after Klarna’s launch. Since then, Klarna and CBA have been focusing on their own businesses and are only now starting to ramp up again.

Ms Ereira flagged a new brand campaign, scheduled for launch next week.

Unlike the approach taken last January, which encouraged consumers to download the app and take up Klarna’s offer, the new campaign will encourage users to browse and be “mindful” of their money and the way they spent it.

The pivot away from a transaction focus reflected changing consumer behaviour brought about the coronavirus crisis.

Mr Siemiatkowski has rejected suggestions the buy now, pay later race had already been run in Australia, accusing the Afterpay and Zip duopoly of lacking “real innovation”.

“We’ve been at it for 15 years and through that time Klarna has developed far beyond instalment payments,” he said. “If you download our app, you’ll be able to go to any website, create a wishlist of items you want to buy, and get price notifications when those items fall in price. “They are not things you’d get from a payments company so, to me, it feels like we’re entering the market with something that’s totally new and it’s actually an early entry.”