Partnerships key in the the BNPL battle
As Klarna clinches a deal with Ant Financial, the rise of buy-now-pay-later continues to transform the business of payments. With major players entering the market, longstanding businesses and banks alike are rethinking their propositions as they battle for both consumer and retail buy-in.
The Commonwealth Bank tie-up with Klarna announced at the beginning of the year signalled that the big banks saw the buy-now-pay-later market as an important play.
While Morningstar analysts noted that the decision would not make any meaningful impact on the bank’s bottom line, for CBA CEO Matt Comyn, the decision was based on meeting the bank’s customer needs.
“Our partnership with Klarna will further enhance the customer experience in our leading banking app and address the rapidly growing demand among consumers for new payment options,” Comyn said at the time of the announcement.
On Wednesday evening, Klarna also announced that Ant Financial would take a minority stake in its business. Under the agreement, Klarna's BNPL services will be provided to Alibaba Group's shoppers.
On RFI Group research numbers, BNPL usage has significantly increased over the past year. It was a theme that RFi Group deputy general manager Kate Wilson spoke on at the RFi Group Mortgage Innovation Summit in Sydney in February.
“Buy-no-pay-later awareness and usage has continued trending upwards, increasing significantly since late 2018," Wilson said.
Not surprisingly, the biggest take up of BNPL has been driven by those under the age of 35.
The rise of BNPL has also seen a corresponding fall in the demand for other forms of consumer lending.
Again on RFi Group numbers, credit cards are declining in usage, particularly for under 35s and based on market data, the personal lending businesses of banks have also contracted by 10 per cen.t
Against this backdrop, the solid growth in sales for Afterpay and flexigroup’s BNPL offering highlight that it is a segment that continues to grow.
In its first-half result, Afterpay’s global underlying sales were up 109 per cent compared with the first half of 2019. Customers also grew by 134 per cent over the same period.
Consumer willingness to be embrace BNPL has seen a number of entrants in the market – including Zip, Oxipay, openpay, Certegy and layby and of course Klarna.
Afterpay currently has had the dominate share in BNPL. Consumer awareness is also high around its branding and according to RFi Group’s Wilson, this BNPL business continues to see significant increases in awareness and usage.
There are only 10 per cent of Australians that have transacted using BNPL and that represents an enormous opportunity for us, Francine Ereira, Klarna
Klarna general manager of Australia Francine Ereira acknowledges that brand promotion will be key particularly against a dominate market player but for the global BNPL provider, it will be all about fostering consumer experiences and driving merchant relationships.
“All the other players in the market effectively have a transactional relationship with the consumer. Our approach is about experience. We want to create a relationship with our consumers,” Ereira said.
Klarna creates this consumer experiences through a number of initiatives. Its buyers can create wish lists and set up notifications when a product is on sale.
Klarna consumers will also have access to exclusive deals and discounts from local Australian retailers, all from their smartphone.
Klarna provides a ‘ghost card’ - a single-use, prepaid virtual card. All purchases and payments can be managed directly in the app, giving consumers flexibility and control over their spending. For example, when creating a Ghost card in the app, users will be able to enter the dollar amount they plan to spend.
Being newish in the role – it was the 12th day in the job when AB+F spoke to Ereira – her hire was announced in January – the main aim is to drive consumer downloads as well as ensuring engagement from retailers.
The tie-up with CBA already provides Klarna with an extensive merchant relationship but the business on its own has already secured the buy-in of big retailers Appliances Online and Australia Post.
According to Ereira, retailers are knocking on Klarna’s doors.
“In terms of the pipeline, it is looking really positive. There is a lot of engagement from retailers. They are looking at offering something different than what is in the market,” she said.
Again, it comes down to creating an engaging experience. “At the end of the day retail is tough. Retailers want to be able to offer their consumers a choice in the way they want to pay.
“They want their consumers to experience their brands with partners that have similarly aligned values.”
Ereira believes the momentum will pick up from retailers as “more and more CEOs and CMOS reach out to us”.
“We are really getting a lot of engagement from those people that are looking at their businesses more holistically and working out how do we collectively achieve more and how do we partner with brands such as Klarna to do that”.
Similarly, its partnership with CBA also offers the bank’s customers value outside of shopping.
“The partnership with CBA represents a common goal of giving people the most access and insights into their spending and shopping behaviour while actually easing the barriers to payment and choice.
“It’s a partnership that also obviously gives us great access to consumers and retailers within the bank family.”
The CBA/Klarna deal does not prevent Klarna from accessing customers outside the bank and the business is already committed to boosting its branding, kicking off its first campaign – Get What you Love.
“There are only 10 per cent of Australians that have transacted using BNPL and that represents an enormous opportunity for us.”
The full report will be included in the upcoming March edition of AB+F.