CBA enters buy now pay later via Klarna

Bernard Kellerman
CBA CEO Matt Comyn, with Klarna CEO Sebastian Siemiatkowski
Digital payments provider Klarna launched in Australia yesterday, with CBA announcing that it had invested a further US$200 million in the Swedish buy now pay later company.

This move been building since the Commonwealth Bank paid US$100 million for a 1.8 per cent stake in Klarna in August last year, part of a US$460 million capital raising that confirmed the Swedish fintech as the most valuable in Europe.

"The Group will become Klarna's exclusive partner in Australia and New Zealand and intends to further invest at the parent and local level to support this partnership," CBA's 2019 annual report stated.

The latest capital injection has lifted CBA's shareholding in the Klarna Group from 1.8 per cent to 5.5 per cent, buying time to counter the risk posed to its revenue and customer loyalty by local BNPL players such as Afterpay and Zip.

In an ASX release, CBA said this payment was made "to increase strategic alignment, bring additional rights, and gain exposure to Klarna's international growth".

CBA declined to explain what the "additional rights" involve, although at the time it made its first investment in August 2019, it was reported that CBA could take Klarna into Indonesia via its local subsidiary.

Under the partnership arrangement, CBA and Klarna - which is sitting on a valuation of US$5.5 billion - will jointly fund and have 50:50 ownership rights to Klarna's Australian and New Zealand business.

The deal looks good on paper: Klarna is Europe's largest buy now pay later provider, with more than 85 million customers using the service to purchase goods and services from 200,000 merchants. Klarna has had a European banking licence since 2017 and has started offering its own payment card.

CBA has 5.6 million customers that use its CBA app every day, and it banks a healthy share of Australia's two million small and medium business operators.

Each CBA app user will be able to connect their CBA account to a Klarna account, joining one of the world's largest buy now pay later online shopping services, while Klarna Australia will gain access to CBA's array of business customers.

Klarna said its app allows Australian consumers to pay in four equal instalments at any online retailer with no interest or fees - "provided they pay in time". Late on the day of launch, the Klarna Australia website warned fees will apply for missed payments but did not provide further details - an opaque moment for a company with a name that means "clear' in Swedish.

Further, the obvious risk to CBA's lucrative merchant fees and card payments revenue posed by this partnership was shrugged off by Matt Comyn, the group's chief executive officer.

Channelling his predecessor Ian Narev - who once defended a CommInsure break-even result by insisting it was there for the convenience of bank customers - Comyn likewise stated that the purpose of the Klarna tie-up was to "further enhance the customer experience" and to "address the rapidly growing demand among consumers for new payment options".

"By partnering with Klarna, we are bringing together our market leading digital technology, merchant relationships and strong customer network with Klarna's innovative payments technology and integrated shopping experience for the benefit of CBA customers and many more Australian consumers," he said.

Klarna tweeted on 7 January that Francine Ereira will be its general manager for Australia and New Zealand, starting 3 February, "as the company expands into the new markets".