After applying for a banking licence from the Swedish regulator in 2017, Klarna has finally announced the launch of its retail bank account in Germany. The account will offer customers access to a debit card that will be Google Pay- and Apple Pay-enabled and will be linked to a mobile app allowing customers to use budgeting tools to analyse their finances.

Recently, Klarna has faced criticism from politicians in the UK due to its business practices that have been described as “the next Wonga waiting to happen,” leading the Financial Conduct Authority to announce its intention to regulate the sector more actively. Despite these challenges, Klarna has entered retail banking – a sign that its attempt to capture more of the entire financial services and shopping experience is underway.

While banks have predominantly sufficed to offer financial services to their customers, non-financial service tech companies have approached the market from a far more monopolistic angle, attempting to capture value from the entire commerce and financial services experience.

Klarna falls under this category despite initially offering escrow services. The launch of the Klarna app in 2017 allowed customers to shop online via its platform and apply buy now, pay later (BNPL) to any retailer, action that significantly shifted its focus from simply being a credit guarantor.

Klarna’s history

Since launch, the app has been one of the most popular in the world and was downloaded over two million times in the US last year, recording over 11 million transactions. This success led Klarna to focus more on embedded finance, and in 2020 it partnered with Bambuser to enable BNPL purchases during an online live fashion show.

Now, we are increasingly seeing an evolution where Klarna no longer wishes to be just one of multiple payment options at checkout, instead seeking to be the pre-eminent payment provider.

While many have been concerned by Klarna’s attempts to expand so rapidly, its approach is not unique and is emulative of the likes of ING, PayPal, and other large technology companies. In Germany, ING has launched its own smart-shopping platform, DealWise, which similarly captures more of the spending relationship that customers have with online retailers.

Likewise, PayPal’s acquisition of Honey, a deal-finding browser add-on and app, reveals its intent to cash in on more elements of the e-commerce experience, ensuring its product suite is pre-eminently offered to customers.

Move into banking

Viewed in this light, Klarna’s move into banking is simply an extension of a business model that attempts to edge its way into every possible point where a revenue-generating relationship exists or can be leveraged.

While no details of what services will be launched have been revealed, it is highly likely that Klarna Bank will complement customers’ shopping experiences to draw them in. This will likely include offering rewards and cashback to customers who have deep relationships with the bank, as well as offering complementary tools such as BNPL receipt-tracking and personal finance management via the banking app.

Unlike ING, which has approached embedded finance as a bank attempting to offer a wider ecosystem to its customers, Klarna established an ecosystem and is now adding banking services to it. This is a strategy that may be more conducive to growth, given that 43% of German Generation Z customers prefer to use new digital platforms for financial services, such as digital-only banks, Big Tech, and non-bank digital platforms.

This is supported by data from GlobalData’s 2020 Financial Services Consumer Survey that shows younger customers, Klarna’s key demographic, are significantly more open to using financial services from non-bank digital providers than the average customer. This suggests that the future for financial services from non-traditional providers is likely to be an area of tremendous growth.