Klarna turns a BNPL track record into a creditworthiness benchmark

An ad for Klarna in a shopping mall.
U.S. customers who have previously used Sweden-based Klarna's buy now/pay later financing — and paid off their loans in full — will be prequalified for interest-bearing loans through a new version of the Klarna Visa card rolling out later this year.
Chana R. Schoenberger

Buy now/pay later fintech Klarna is taking a page from rivals including Affirm and Afterpay by offering a new version of its Visa debit card that will enable consumers to pay over time with interest on purchases, replacing a two-year-old $4.99-a-month debit card that supported interest-free Pay in 4 installment loans.

But the debit card isn't available to just anyone. Eligible applicants must have previously used Klarna to make a purchase and repaid on time at least once. Consumers must also pass "internal and external credit checks," according to a press release.

The new Klarna Card, which the Sweden-based firm announced Wednesday, will offer users various interest-based repayment options for individual purchases, including paying in three- or six-month installments or moving the payment due date for a purchase to the following month, according to the press release. Klarna's longtime partner WebBank, based in Salt Lake City, Utah, will issue the new card. 

Users may pay their bill in full at any time, or at the end of each monthly billing cycle, with no interest, and there is no monthly or annual fee for the new card. Klarna is also offering users up to 10% cash back on purchases at certain merchants with the new card, which will roll out later this year, the firm said in the release. 

Klarna executives have been adamant in pointing out that the firm's products are not credit cards. "A user can either pay the full month's statement at zero interest, and the funds will be removed from their bank account immediately, like debit," Klarna said. 

There are no changes to Klarna's core interest-free Pay in 4 loans, which are still available online and through the Klarna app at participating merchants, a Klarna spokesperson said. "Our aim is to help customers build credit scores with on-time payment behavior, so in the future we will report Klarna Card data to the credit bureaus," the spokesperson said. 

Much like the flexible payment plans that Affirm and Afterpay offer users of their respective debit cards, Klarna Card touts its new card as a departure from the revolving credit and minimum payments of traditional credit cards. Klarna Card users may convert individual purchases to interest-bearing loans to installments of one, three or six months, not the card's entire balance. Interest on loans ranges from 14.99% to 33.99%.

For users who link their Klarna Card to the app — which is compatible with Google Pay and Apple Pay — Klarna provides an "AI Assistant" to help find the best deals on products, the release said.

The firm recently said it has served 37 million U.S. consumers last year, up 15% from 32 million at the end of 2022. 

Klarna's latest product brings its card into parity with existing BNPL products, but its core offering is not radically different than the increasingly differentiated financing options consumers can access with traditional credit cards, said Ariana-Michele Moore, an advisor in the retail banking practice with Datos Insights. 

"Many of the large credit card issuers offer a competing flex pay option to BNPL," Moore said, noting that Datos' research indicates about 44% of credit card customers have such options. Datos surveyed 4,634 consumers in North America and the U.K. during the first quarter of 2024.

Citizens Bank is among a growing number of banks that offer credit card customers a range of financing options on specific purchases, ranging from spreading payments into installments with zero interest or promotional interest rates. 

About half of U.S. consumers have tried BNPL loans at this point, so new products will need to stand out to get attention, Moore said. 

Klarna's approach to qualifying consumers for the new Klarna Card appears to be somewhat novel, by notifying users of the requirement to build a repayment track record before applying for the card.

"Klarna probably has enough 'credit' history on its users to offer the card without a hard credit pull, assuming a reasonable credit limit," Moore said. 

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