The rise of the buy-now-pay-later giant Klarna has been well-documented throughout 2020, but what firms are looking for a slice of its pie in 2021?
Despite all the ups and downs, 2020 has been the year when fintech stepped up to the plate, and with that, we saw many different forms of fintech edge their way into the mainstream.
Digital banks and alternative lenders, namely Starling Bank and Funding Circle, have been some of the biggest lifelines to the nation’s SMEs as they try to navigate the Covid-19-related economic turbulence.
But, aside from the usual suspects, we’ve also seen other aspects of fintech come out of the woodwork and reach a bigger pool of people than ever before.
In 2020, we’ve seen Klarna well and truly break into the mainstream, becoming Europe’s most highly valued fintech, for the second time after first clinching the title back in August 2019, with the Swedish fintech now valued at $10.65bn.
But, buy-now-pay-later (BNPL) has not had the smoothest 2020. At the beginning of December, Capital One became the first major bank to block BNPL credit card transactions, with the US bank describing such transactions as “risky for customers and the banks that serve them.”
The rise of BNPL fintechs has been on the horizon for a while, and it could be argued, in fact it has been, that as purse strings were tightened, consumers turned to these alternative credit providers to help them stretch their money just that little bit further.
As the BNPL sector hots up, we take a look at the other fintechs taking on Klarna in 2021.
Clearpay (or Afterpay as it’s known in its native Australia) is one of Klarna’s biggest rivals, not just Down Under but in some of Klarna’s biggest markets too.
The Australian firm experienced record growth in 2020 and has set its sights on chipping away at Klarna’s dominance in 2021.
Here in the UK, Clearpay’s sales leapt up by 346 per cent to A$300m (£163m), up from just A$100m (£54m) in the first quarter of the 2020 financial year.
Across all regions, in the first quarter of its 2021 financial year, Clearpay saw sales across all regions jump up by 115 per cent to A$4.1bn (£2.3bn), a huge leap up from the A$1.9bn (£1.03bn) recorded in the same period last year.
Not only were its sales booming, but the Australian firm also tapped into several new markets, riding the wave of the BNPL surge.
The firm expanded into Spain, France and Italy this year, following the acquisition of local fintech Pagantis for €50m.
Afterpay has also been listed on the Australian Stock Exchange (ASX) since May 2016 and has seen its share price more than triple in 2020. The fintech started the year with a share price of around A$30 (£16), and its shares are currently sitting at A$111.29 (£62.60).
Afterpay’s New Zealand-based neighbour Laybuy is also one of the firms hoping to chip away at Klarna’s market share in 2021.
Just like its fellow BNPL fintechs, Laybuy experienced a strong 2020 as consumers shifted to online shopping in the wake of the Covid-19 pandemic.
Throughout the last year, the fintech saw a 162 per cent increase in the total amount spent through its platform over the past year.
Laybuy's customers have spent over NZ$508m (~£238m) through its platform, and the BNPL fintech has also seen a 48 per cent increase in the number of active merchants using its financing options since the end of September last year.
Unlike its rivals, Laybuy offers customers the chance to make repayments weekly, compared to the monthly or bi-monthly structure used by the likes of Klarna and ClearPay.
The BNPL fintech also followed in the footsteps of Afterpay and listed on the Australian Stock Exchange back in September 2020, with an opening share price of A$2.10, although the fintech’s shares are now priced at around A$1.30.
Perhaps an unexpected entry into the BNPL sector, PayPal launched its own buy-now-pay-later product in October of this year.
The payments giant will now allow its customers to split payments into three interest-free instalments, a system that is near identical to its new rivals.
Unlike Klarna though, it seems PayPal’s Pay in 3 is only available on purchases of at least £45 and up to £2,000, which could limit some of its appeal for smaller and much larger spenders.
At the time of its launch, the US-based payments group announced a select few online vendors would be joining the venture initially, with plans to expand in the coming months, according to PayPal there are now “millions of stores where you can Pay in 3.”
Given PayPal’s overwhelming customer base, it could be argued that PayPal’s BNPL offering could pose the biggest threat to Klarna as we move into 2021.
New BNPL fintech on the block, Zilch burst onto the scene earlier this year.
The UK-based fintech was the first British fintech to gain consumer credit authorisation from the Financial Conduct Authority (FCA) back in November.
Since then, Zilch has seen its customer numbers quadruple, adding roughly 30,000 new customers each month, and has closed a $30m equity top-up as part of its heavily oversubscribed Series B.
Unlike traditional BNPL fintech, such as the likes of Klarna and Clearpay, Zilch lets customers pay in interest-free instalments at any online retailer where Mastercard is accepted, not just the ones supported by its platform.
Through open banking, which is powered by fellow London-based fintech Credit Kudos, the fintech ensures that customers can afford to repay their deferred purchases by using real-time insights into a consumer’s financial wellbeing and current expenditure.
The newcomer seems to be making waves in the BNPL space as it tries to let its customers not bite off more than they can chew.
As well as fintechs that focus solely on BNPL, in 2020 we’ve also seen other fintechs, just like PayPal, take a swipe at Klarna’s crown.
For instance, Curve, which already has a credit-esque product, ‘Go Back in Time’, that allows customers to swap their payment card on a transaction up to 90 days old, has decided to dip its toes in the BNPL waters with Curve Credit.
Curve Credit lets users split the cost of transactions across different payment cards linked to a Curve account and doesn't need the merchant to support it as a payment method, unlike Klarna.
And it’s not just Curve testing out the waters. Just last week, Danish challenger bank Lunar launched its own ‘pay later’ product after teasing its launch following the closure of its €40m Series C back in October.
The digital bank’s new product will allow its customers to split transactions up to €1,400 per month into four instalments or delay a payment for up to 30 days.
Despite the rapid pace at which the BNPL sector appears to be expanding, it remains to be seen if any of Klarna’s rivals will actually make a reasonable dent in the Swedish fintech’s grip on the sector, but given how unexpected 2020 was, who knows what will happen in 2021?
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