Skip to Content

The buy now, pay later wave: Klarna, Affirm -2-

With a name that's a play off the Swedish word for "clear," Klarna is looking to make its mark in the U.S. after seeing success in Europe with what it says is a more clear and transparent approach to offering credit.

The company's mission is "not to be at checkout of every single website like PayPal" but rather to "be at the intersection of payments, shopping, and banking," according to David Skyes, the head of the company's U.S. business.

For Klarna, that means engaging customers beyond the point of purchase, allowing them to track their packages within the Klarna app, where they may also be tempted to view items from other retailers, add products to their wish lists, or even deposit money with the company at a "slightly higher interest rate," Sykes said.

See also: The fight to shave milliseconds off your purchases (link)

Like Affirm, Klarna offers shopping from within its own app-based browser, also allowing customers to make purchases from retailers like Amazon. "The biggest challenge is that a customer discovers you on Sephora and then they go to Amazon and you're not there," Sykes said, but the in-app browser lets consumers "shop anywhere" without worrying about the behind-the-scenes work that enables Klarna to split these payments.

Klarna's app launched about a year ago in the U.S., where it now has 3.5 million monthly active users.

Customers tend to use their debit cards for purchases with BNPL services, but Sykes acknowledges that debit cards "aren't that great of a product." For one, shoppers don't get rewards points with typical debit-card use, the way they would when shopping with their credit cards, so Klarna launched its own loyalty program to offer some perks for BNPL shopping. The program is "growing ferociously fast," he said.

Klarna's most popular product is an interest-free pay-in-four installment offering, with average order values of $140 to $150 across North America. The company also offers a pay-in-30 option that lets consumers pay 30 days after delivery of an item, so that they can try it and decide if they want to return it.

The company charges a $7 late fee for missed payments, but a spokeswoman said that Klarna doesn't report to the credit bureaus for the Pay in 4 and Pay in 30 offerings.


PayPal is no stranger to letting customers pay over time, having acquired Bill Me Later, an early online-credit service, more than a decade ago while still under the eBay Inc. (EBAY) umbrella.

The company has since ventured into the BNPL universe, introducing its Pay In Four product for U.S. users last summer (link) and letting them make four interest-free payments over six weeks. PayPal had a key advantage in its rollout, as it was able to offer the feature to its millions of existing merchants and at no extra cost beyond what those merchants ordinarily pay for the company's payment-processing functions.

The company's deep merchant relationships make it so the company is "the only virtually ubiquitous option," said Greg Lisiewski, the vice president of PayPal's global pay-later products. (Morgan Stanley analysts have calculated that PayPal is accepted by about 80% of the top 500 U.S. internet retailers.)

For more: Here's how PayPal hopes to turn Venmo into the next PayPal (link)

Merchants using Pay In Four have seen a 39% lift in average order value relative to standard PayPal usage, Lisiewski said. He argued that PayPal has a "significant underwriting advantage" because of its industry history and data on consumers' payment patterns.

Lisiewski, who came to PayPal through the Bill Me Later acquisition, expects that BNPL products will exist in concert with more traditional credit offerings. Despite talk of millennial skepticism toward traditional credit, PayPal's research in conjunction with industry-publication found that almost 90% of the generation had credit cards.

"I think there's going to be room for all of it," he said, with BNPL proving useful for smaller and medium purchases and more traditional credit offerings serving higher-value purchases.


While the BNPL industry features players that are looking to boost their own brand value through apps and loyalty programs, travel-focused Uplift sees value in working more behind-the-scenes.

"If you're making the payment brand primary and having them take customers and remarket them, that's a bad trade for big enterprise brands," Chief Executive Brian Barth said. "If you want to use Uplift on United, you go to the United app."

Uplift, which works with travel companies like Carnival Corp. (CCL) and recently signed a partnership with Southwest Airlines Co. (LUV), helps consumers finance leisure purchases from $100 flights to $25,000 cruises using both simple-interest and interest-free offerings.

The privately held company had a "record" month in March, even though cruise lines can't yet sail, and it's "bracing for steady growth" now that the travel corridors are reopening, according to Barth.


Visa makes money when people use installment-payment offerings with their Visa debit or credit cards, but the company is also testing out a way to become involved in BNPL more directly. The card giant has a U.S. pilot program with Commerce Bank through which consumers using debit and credit cards issued by the bank will be able to see installment options on merchant sites where the technology is enabled.

"We're trying to take the already approved issuer credit lines into installment payment options," Mary Kay Bowman, Visa's global head of seller solutions, told MarketWatch. People would pay off their installments using debit but leverage their existing lines of credit with the bank.

See also: Visa sees 'massive' digital acceleration as millions try e-commerce for the first time (link)

The pilot is focused on Commerce Bank in the U.S., but Visa has seen success with similar efforts overseas and it's more broadly been enabling installment payments for decades. Brazil has been an early adopter of split payments, and half of Visa's credit purchase volume in the country comes from installment payments whether on payment terminals or online, Bowman said. Installments are also popular in Mexico and Turkey, she added.

A crowded field of potential rivals

The BNPL market has become crowded in the U.S., with companies like QuadPay, now part of Australia's Zip Co. Ltd. , also in the mix, in addition to more traditional financial companies. American Express Co. (AXP) has a feature called Plan It that lets cardholders put up to 10 large purchases in a "plan" and then pay for that over time alongside a fixed monthly fee. Chase (JPM) also has a feature that lets customers pay for $100+ purchases over time with a monthly fee.

-Emily Bary; 415-439-6400;


(END) Dow Jones Newswires

06-01-21 0759ET

Copyright (c) 2021 Dow Jones & Company, Inc.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.