Retailers have welcomed the launch of Klarna in the Australian market and view the Swedish buy now, pay later company as providing a point of difference in the crowded payments space.

Klarna, which is backed by CommBank, launched in Australia a fortnight ago, the company’s 17th market. This global presence means local retailers are already familiar with Klarna’s proposition.

One retail executive who is not authorised the speak to media, told Which-50 Klarna has a real point of difference, unlike other homegrown BNPL providers who are all operating from the same playbook in an effort to get a slice of the booming market.

“Klarna has come to the market with something fresh and I think it will be well received,” they said.

Over the last five years several providers have emerged which allow shoppers to pay by installments over time, instead of paying the full amount upfront.  They include, Afterpay, Zip, Openpay, Humm, Payright, BrightePay, Bundll and LattitudePay.

“I love Klarna’s branding and I think it represents an interesting new development to the BNPL landscape,” said Kate Morris, CEO of online retailer Adore Beauty.

“Competition is always a good thing, especially when it leads to more options for consumers. However I would expect that down the track there would be some rationalisation in the sector.”

Fran Ereira
Fran Ereira, General Manager for Australia and New Zealand, Klarna. Source: Supplied

So far the response from consumers and retailers has been strong, says Fran Ereira, Klarna’s General Manager for Australia and New Zealand.

“Australian retailers have really been looking for a one stop smooth solution. What we don’t have in this market is an experience like Klarna has curated,” Ereira told Which-50.

“Within the first week, we had more than 10,000 downloads. And the more exciting part is that we’re actually seeing those consumers transact.”

It’s still very early days for Klarna’s B2B relationships in Australia. The service launched without any Australian retailers onboard, which was possible thanks to its transaction technology.

Essentially there are two ways to shop with Klarna, via its app which creates a temporary Visa card number known as a ‘ghost card’ to shop at any online retailer and pay for the purchase in installments. The second method is to directly integrate Klarna at a retailer’s online check out.

When a shopper uses a ghost card there’s no fee for the retailer – in fact they won’t even be able to identify a customer has come via Klarna. Merchant fees do apply when a retailer partner joins the platform.

The ghost cards will allow Klarna to build a critical mass of consumers, making it a more appealing proposition for retailers to sign up to.

“The reason that we chose to launch in Australia with what we will call a consumer ubiquity approach — meaning that a customer can check out at any online retailer using the ghost card — is because what we felt was, we’ve got retailers that know who we are, but we need to build a consumer audience and start getting consumers loving the product because they may not necessarily have been exposed to the brand,” Ereira said.

Klarna’s ghost card. Source: Supplied

Without the ghost card approach, BNPL companies must sign contracts with retailers to provide their payment services at the checkout.

“Afterpay grew retailer by retailer but their difference was that they had a flock of customer demand behind them before they came in and saw you,” recalls Nathan Bush, the former head of digital at Super Retail Group and founder of 12High.

According to Bush, this strong consumer demand helped Afterpay become the dominant player in Australia’s buy now, pay later space over competitors which have “offered retailers huge financial and marketing incentives to jump on board but not getting the traction of Afterpay.”

Appliances Online Partnership

Last week, the Winning Group became the first local retailer to partner with Klarna, with the service scheduled to go live on Appliances Online towards the end of March.

CEO of Winning Group, John Winning told Which-50 the retailer’s goal is to provide its customers with “efficient, streamlined and convenient shopping experience.” The services provided by Klarna will offer shoppers further convenience.

Klarna is also positioning itself as a shopping service, rather than just a buy now, pay later provider. Its app allows shoppers to create wishlists and receive alerts when a product goes on sale. According to Klarna’s local GM, this means the app will play a role in loyalty and customer acquisition.

For his part, Winning agrees.

“Klarna enhances the discovery process for retailers, opening up channels and opportunities for retailers to connect with customers,” Winning said.

Australia Post is also in discussions with Klarna in Australia, with the intention of making the BNPL method available to retailers using its SecurePay payment gateway to facilitate online payments by mid-2020.

“The adoption of buy now, pay later continues to accelerate in Australia, with many users being frequent online shoppers. Our latest research suggests as many as 86 per cent of Australian customers using buy now, pay later payment options purchase something online at least once per month,” said Deanne Keetelaar, Australia Post General Manager Payments & Financial Services.

“We know that offering payment choice is important to consumers, so we’re looking at a number of ways we can offer buy now, pay later options to our merchants and Klarna’s solution is a great first step in this direction.”

According to Ereira, Klarna will help retailers increase average order value and protect their bottom line.

“What retailers want to do is sell more through whatever channel the consumer wants to buy through at a profitable margin. They don’t want to be discounting every other day. So they’re looking to partner with people that have ways and means to send that traffic to them to drive that conversion and minimise that abandonment,” she said.

Only 10 per cent of Australians have actually utilised a buy now pay later payment method so there is absolutely room for more market entrants. I think that the key is that we are really on a journey from being a pure payments provider to a global shopping ecosystem.”

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