Buy Now Pay Later provider Klarna has added half a million Australian consumers in less than a year through “meaningful” personalisation and what its local leader describes as a “carrot” approach to repayments.

Launched a year ago nearly to the day with $300 million of backing from CBA, Klarna entered an already crowded BNPL market without any merchants on board, looking to consumers first with a slick app and no late fees.

Users can use either a virtual card generated with the Klarna app to make purchases immediately from any online retailer or, if supported by the merchant, Klarna can be directly integrated to the checkout.

Another appeal – and one common to other Buy Now Pay Later (BNPL) providers – is users can break purchases into smaller instalments and pay over time starting when they receive the product.

Klarna pays the retailers up front when goods are dispatched minus the merchant service fee. The company also added late fees in August but says 99 per cent of transactions do not incur them in Australia and it offers options to pause payments.

Half a million users

A year into the Australian market the platform has 575,000 Australian users and 400 local retailers integrating Klarna into their checkouts.

Klarna’s country head, Australia-NZ , Fran Ereira, says consumers are coming on board because of Klarna offers its personalisation in a way that brings utility.

“We’re not doing deep, deep personalisation we’re not asking [users] the colour of their eyes and things like that,” Ereira told Which-50.

Klarna’s country head, Australia-NZ , Fran Ereira. Image: Supplied.

“What we really want to know is what’s important to you, are you into the arts, are you into sport, are you into fashion [or] electronics? What are the categories and verticals that are meaningful and relevant to you?”

With that information, Klarna can better offer features like wishlists, price drop alerts and a rewards program. The app can also pull in brand’s shoppable content for direct purchase, rather than simply directing users to a store.

“What then happens is the next time you enter our app, you’re seeing content that is relevant and meaningful … We don’t want to be seen like Siri or Google: stalking them [consumers]. We just want to use it to create that utility.”

Ereira says Klarna has worked closely with its Australian owners the Commonwealth Bank – a personalisation leader – on quickly onboarding CBA customers but it does not share data with the bank beyond allowing CBA customers to prepopulate sign up forms.

Ereira says Klarna now has a further 100 retailers and brands currently integrating with Klarna, looking to join recent additions like Country Road, Bonds, Sheridan and General Pants Co.

Ereira says Klarna has been “blown away” by the response of retailers to the new entrant, and it’s clear they welcome the increased competition in the market.

The sustainability of BNPL

The Swedish company’s arrival has coincided with more scrutiny on the local BNPL market, including the development of an industry code for providers following concerns from regulators and consumer groups about the sustainability of the model.

Klarna’s virtual card allows shoppers to reduce online buys to four smaller payments. Image: supplied.

Set to begin January 1, the code has been delayed to include possible responses to a looming report into the sector from ASIC.

Ereira insists the BNPL model is sustainable and stresses Klarna performs credit and ID checks on potential users. The company has spent much of its first year analysing consumer behaviour to improve how it decides who can join the platform, she says, but declined to disclose what percentage of users are declined.

“Making sure that people are using our products in the safest and most sustainable way is still our number one priority, particularly with the economic mood the way it is now and what we’re about to experience in the next 12 to 18 months with the flow-on effects from the pandemic,” Ereira tells Which-50.

It is in Klarna’s interest for users to make their repayments, Ereira says, which is why it offers a “carrot” approach with pauses and “smoothing” of repayments. Another incentive for users to make payments is the structure of Klarna’s rewards program. Rewards are accrued with purchases but not unlocked until all the repayments are made.

Klarna also continues to be involved in the industry code which Ereira says is needed to allow continued innovation in a responsible way.

“We really do feel that it’s important for innovation to not be stifled but we do think it’s important that we self regulate [and] we do the right things as a collective group.”

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