By FintechOS · August 15, 2022
5 minute read

The fall of Klarna: could established banks take over BNPL?

The fall of Klarna: could established banks take over BNPL?

Klarna has announced a round of redundancies and its valuation has plummeted. We consider whether this is the end of BNPL, or an opportunity for established banks.

BNPL is currently meeting some serious scrutiny. Klarna, who has been leading the way in terms of buy now pay later (BNPL) success, has been struggling. In recent months, Klarna has had to cut 10% of its sizable 7,000-strong team and reported its net loss in the first quarter of the year has quadrupled.

There’s also been a considerable rise in cash outflows, and the business is working to raise new capital with a particular investor projecting a 20-50% drop in valuation compared to the USD 46 billion achieved in June 2021.

After seeing such amazing growth over the past few years, everything is starting to halt for the BNPL business model. In 2021, BNPL transaction volumes hit USD 120 billion, a huge increase on the USD 33 billion of 2019. Yet, times are changing and the buy now pay later business model may not be able to keep the pace. It emerged and excelled at a time when banks had very low interest rates. This enabled BNPL startups to raise funds at low costs, making it simple and sensible to offer loans to customers at the point of sale who were about to checkout on shopping websites.

The situation today looks very different. Interest rates are going up, inflation has reached a 40-year high, and a cost of living crisis has prompted people to shop less. Many are not as willing (or able) to part with their money – even if they don’t need to pay it back until later.

Klarna BNPL vs established banks – who will come out on top?

This raises the question – are BNPL businesses in trouble? Klarna isn’t alone, other BNPL providers and neobanks are also losing money. The reason behind this is pretty clear: in addition to a challenging economic landscape for BNPLs, established banks are the powerhouses in this story, possessing all the money and resources needed to outlast the economic difficulties that are currently sinking disruptive startups. BNPLs like Klarna and Afterpay are underdogs who will have to fight to survive.

Apple has also complicated the matter. Its new BNPL solution, Apple Pay Later, introduced another layer of challenges for startups like Klarna. Here we have a brand that has revolutionized consumer technology – from the iPod to the iPhone, iTunes, Apple Watch, laptops and desktops, and more, Apple has managed to build a loyal customer base of over one billion people. So Apple Pay Later immediately has keen customers. This is a huge advantage against any competitors, and the entire industry is watching Apple and its chosen business partner: Mastercard.

While not a traditional bank, Mastercard is certainly a longtime player in the global finance community, immediately marking this partnership as high profile and trustworthy. Traditional banks must be ready to keep up.

Klarna’s fall is an opportunity for established banks

If providers like Klarna are beginning to go under, could established banks be in the position to take their market away from them? Current events could indicate: yes. With non-bank players like Apple, Matercard, and Visa jumping in on the scene, it’s making the industry shuffle, which could present an opportunity for established banks to get in on the winnings.

Banks should not be put off by startup struggles on the buy now pay later scene. These issues in no way reflect the sound future of the industry. Despite the hiccups, it is estimated that by 2030, digital BNPL solutions will be worth USD 4 billion.

All that is required of established banks to capitalize on this opportunity is to create a strong BNPL solution that will work with their established infrastructure, which FintechOS can offer.

Established banks are already partnering with tech platforms to provide the public with buy now pay later solutions and seeing success. Allianz has taken the opportunity to do so, and the brand is excited about the opportunity and the scalable growth they are projecting for their BNPL products.

The business model pairs Allianz Trade with Two, an ecommerce platform. Allianz will insure domestic and international payments between Two’s B2B platform emerchant partners, and their buying customers. An API will integrate the underwriter and platform’s internal systems, which will allow Allianz to provide immediate decisions on credit requests from buyers. Once a customer’s purchase is approved, at final checkout, the customer will be provided with a buy now pay later option.

This combination of exciting partnerships, forward-thinking use of API technology and instant risk assessment is one of the many reasons that established banks are qualified to enter the BNPL space – they bring so much to the table that can be built upon to create a solid offering for customers who already know and trust their brand.

Enter the BNPL game with Marketplace

Our BNPL solution has everything banks need to get their BNPL platforms up and running within three months. Our plug-and-play solution will allow your brand to effectively compete and excel in a challenging, fast-growing industry.

We’ve anticipated the needs of banks, and as a result have created a platform that will set apart banks who use it for their launch, including:

  • Fast-track approval process
  • Personalized products
  • Seamless CX on checkout
  • Flexible decision models
  • Easily and perfectly embedded journey to quickly onboard any new merchant
  • Third-party agreement empowering efficient and automated settlements
  • BNPL loan management activities
  • Exposure monitoring

To find out more about how we can help your bank entice your customers with a BNPL product, book a demo today.

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