Two of the world’s biggest fintech organisations, Klarna and Stripe are moving closer together through a new small business partnership.
Both are privately owned, but Sweden-based Klarna was valued at US$46bn in its most recent funding round and Stripe almost double that at US$95bn.
Klarna’s speciality is a buy now pay later payment (BNPL) and shopping service provider and the new arrangement will allow small businesses around the world to use Klarna’s feature.
As part of the agreement, Klarna will route more of its payment volumes through Stripe’s platform.
The company currently uses Stripe for 90% of its payments in the US and Canada and plans to expand further through this deal.
Formed in 2005, Klarna has grown rapidly through its BNPL product, which allows customers to purchase items by spreading payments over a three-month period.
Alternatively, customers can pay for an order in full up to a month after purchase.
Klarna saw huge growth in the first half of 2021, with users rising to over 90 million global customers carrying out two million transactions a day on average.
Stripe, which was founded in 2009 by two Irish brothers, has developed software that enables merchants to offer fast, simple, secure online purchasing for businesses and a has already seen its platform adopted by the likes of Missguided, Glossier and the British Council.
Businesses who use Stripe’s software to take payments will now be able to offer Klarna as a payment option to their customers without having to create their own agreement with the Swedish based company.
Early results suggest that merchants using Stripe and that have integrated Klarna into their payment methods have seen “an average 27% increase in sales,” according to the payments group.
Will Gaybrick, chief product officer at Stripe, said, “We are very excited to offer more payment flexibility to millions of businesses using Stripe around the world thanks to our partnership with Klarna.”
Despite its exponential growth, there are concerns over Klarna’s business model and the debt it could put those who use the service in.
A report by the Financial Conduct Authority (FCA) earlier this year highlighted how the BNPL market requires greater regulation due to the significant potential for the harm it can cause to the consumer.
Earlier this month, Klarna announced some modifications to its services in the UK ahead of an expected toughening of regulation.
Klarna will now clearly spell out that BNPL is a credit offering that has penalties for missed payments.
Customers will also be able to choose a new Pay Now feature, as well as other changes that will bring its UK BNPL services in line with the rest of the 17 countries where it operates.
According to the FCA, the BNPL market has quadrupled to GBP2.7bn, roughly 1% of the UK’s credit sector.