Commonwealth Bank makes buy now, pay later move with stake in Sweden’s Klarna
Commonwealth Bank is set to shake up the burgeoning buy now, pay later space through a new deal with Sweden’s Klarna.
Commonwealth Bank is making a tilt at the burgeoning buy now, pay later and digital payments space, after striking deal to acquire a stake in Swedish group Klarna.
The move has the potential to shake-up the local market for buy now, pay later services and impact locally listed groups including Afterpay Touch and Zip.
CBA was part of a $US460 million ($685.1 million) funding round for Klarna which lifted its total valuation to $US5.5 billion, the company announced on Wednesday morning.
CBA made an investment of $US100 million into the fintech.
The bank and its new fintech partner will likely seek to draw on CBA’s extensive network of digital and retail business customers, particularly because it has the most merchant terminals in Australia
Industry participants will now also be closely watching the next move of Westpac, which directly owns a 15.7 per cent stake in ASX-listed Zip.
CBA has provided little information on the Klarna Australia rollout but the bank is aiming to provide a more detailed update in coming months.
“We will become Klarna’s exclusive partner in Australia and New Zealand and intend to further invest at the parent and local level to support this partnership,” the bank said in a statement accompanying its annual financial results.
“We can confirm Klarna intends to launch an offering in Australia and New Zealand in the future,” the Swedish company said in a separate statement.
CBA chief executive Matt Comyn expressed his confidence in the Klarna investment.
“We are excited about some of the innovation we’ll be able to bring to market,” he said.
“Klarna I’d describe as one of the leading global payments providers... payments and our digital experience which is a core part of our strategy are absolutely critical for us strategically.”
Mr Comyn wouldn’t comment directly on whether CBA was taking on Afterpay but did note the bank wanted to “lift standards” in the payments industry which suggests the Klarna partnership will be bound by responsible lending rules.
An Afterpay spokeswoman told The Australian: “Afterpay is not a bank and unlike other newer players into the industry, we have not designed our service to achieve traditional credit lending economics by entrapping customers in revolving debt - we’re proud of that.
“It’s why our business model resonates so strongly with customers and retailers, who are moving away from traditional products.”
Last week, The Australian flagged the Asia-Pacific region had been identified as part of Klarna’s strategic growth agenda.
The fintech is backed by investors such as payments giant Visa, international technology investment firm Atomico and venture capital houses Sequoia Capital and Permira.
Klarna has more than 60 million customers and 130,000 merchants and generated US$627 million of revenue in 2018.
The company instalment payment options - otherwise known as buy now pay later - direct payments, and pay after delivery options.
Some of Klarna’s payment offerings do not charge interest, while it also has products that do.
McLean Roche Consulting’s Grant Halverson, a payments stalwart and former executive at Citibank and Diners Club, said Klarna would bring a global might to Australia which hadn’t existed since GE exited the consumer finance market in 2015.
“Klarna will be successful in Australia,” he said.
“They will provide Afterpay and Zip, and the existing players Latitude and Flexi [FlexiGroup] with more than a few headaches,” he said.
“CBA clearly can target younger consumers and look to lock them in and upsell other products.”
But Regal Funds Management’s Mark Nathan is not so sure.
“Between primarily Afterpay and Zip that horse has already bolted, so it would be difficult to see how CBA gains significant market share in a way that is going to be significant for them,” he said.
“It is really a defensive move because the use of credit cards is dropping.”
Mr Halverson’s analysis shows Klarna charges retailers significant less for transactions than rival buy now, pay later players.
In Germany it typically charges 1.99 per cent, 2.49 per cent in Britain and 2.99 per cent in the USA. Its global rate of 2.79 per cent is markedly less than Afterpay’s 4 per cent for in-store purchases and 6 per cent for online.
Mr Halverson said Zip charged between 2 per cent and 4 per cent and FlexiGroup between 2.5 per cent and 6 per cent.
He cited a number of global deals that Klarna has with large retailers which would also boost their Australian market penetration. The Swedish group has agreements with brands including IKEA, Sephora, H&M, Adidas, Zara, Nike, Lenovo, ASOS and Spotify.
Afterpay investors shrugged off the CBA announcement with its shares rising in line with the S&P/ASX 200 by 0.6 per cent to $22.48, while Zip’s stock climbed 1.75 per cent to $2.91. Both stocks were stabilising after two days of heavy losses, which sliced 12.8 per cent off Afterpay’s price.
Additional reporting: David Swan
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