How Traditional Banks Face Competition from Fintech Firm Klarna
The new cashback option from Klarna awards users’ Klarna accounts with money that may be used for transfers or payments. By bringing its free “Klarna Guthaben” account to other nations, Klarna is now able to compete with conventional banks by providing interest rates of 3.58%. Together with its anticipated IPO, this action puts Klarna in a strong position to draw in and hold onto clients in the cutthroat fintech industry.
Klarna is updating its bank account and adding a cashback feature. Depending on the merchant, customers can now get up to 10% of the purchase price back for each transaction they make using the Klarna app.
The money is deposited to the Klarna account “like real money,” unlike many other loyalty programs, and may be used to pay for purchases, settle unpaid Klarna bills, or be transferred to your personal bank account.
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The free account known as “Klarna Guthaben,” which has been accessible in Germany for about two years, is another example of how the fintech is growing at the same time. In addition to the United States, it is currently accessible in Austria, Belgium, Finland, France, Italy, Ireland, the Netherlands, Portugal, Spain, and Sweden’s domestic market.
According to Sebastian Siemiatkowski, co-founder and CEO of Klarna, the new services are meant to enable customers to “earn money while shopping and conveniently manage their money in their Klarna account.” Regular savings in sub-accounts are also made possible via automatic savings schemes.
Accounts, interest, and cards
The new cashback offer reminds me of another fintech that has been emphasizing traditional banking products more and more lately. In the spring, the German neobroker Trade Republic introduced its “Save Back” feature. When using the company’s own Visa card to make purchases, this cashback option also offers money back. If consumers choose, the money can then be automatically transferred into a stock savings plan.
Another similarity between the two fintech firms is that they are entering the traditional banking market with their products. Recently, Trade Republic launched a free checking account. Consumers may use it to set up direct debits, make deposits and withdrawals within the app, and send money in real time. Additionally, both fintechs promote alluring daily savings.
Klarna as a competition for traditional banks
This means they are competing with traditional banks, which tend to be more cautious when it comes to interest rates and sometimes charge high fees for current accounts. At the same time, the top overnight interest rate and the combination of monetary cashback with the account are offers that are not available at many neobanks.
Both fintechs actually started out very differently. Trade Republic was founded as a mobile trading platform that enables commission-free investing in stocks and ETFs. The fintech now has four million customers in 17 European countries. Since the turn of the year, Trade Republic has also had its own full banking license.
Klarna grew up as a payment service provider primarily with “Buy Now, Pay Later” (BNPL), but has now built up a very broad offering around its shopping platform. In this country, 215,000 people already have a Klarna account.
In the long term, however, the company wants to scale back its business with revolving loans, which are often risky for consumers . Klarna has repeatedly received a lot of criticism for its BNPL business because the installment payments have a reputation for tempting careless consumers, especially young people, to build up debt. The EU has therefore also tightened the rules for BNPL payments.
Klarna is almost ready to go public.
The new savings and account options are crucial for fintech businesses like Klarna and Trade Republic to draw in new clients and keep existing ones over time. Another significant milestone for the Swedish payment service in relation to its intended IPO is the availability of the Klarna account in several additional European and American nations.
Founded in 2005, the fintech business was once the most valued start-up in Europe. However, its valuation dropped dramatically from $45.6 billion to $6.7 billion USD following the interest rate reversal and the collapse of fintech funding. Although it is unlikely to happen this year, the fintech is presently preparing for its initial public offering (IPO). This year, Therefore, the primary goal is to demonstrate that Klarna can turn a profit once more.