IBS Journal July 2017
07
Klarna bags banking licence – but what happens next?
banking licence by the Swedish Financial Supervisory last month. The firm is now the largest FinTech company in Europe to hold a licence. It will be changing its name to “Klarna Bank” to emphasise the new direction.
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Valued at more than $2 billion, the firm has processed payments for more than 60 million
customers across the continent.
Its strongest market is in the Nordics, where it accounts for around 40% of all e-commerce payments in Sweden.
Klarna has a base of around 70,000 merchants and is present in more than 18 countries across Europe. The firm has thrived on offering customers a comfortable way of making non-bank financial transactions. That modern user base, Klarna must recognise, will be primed for involvement in a digital-first bank.
Millennial power
Klarna chief executive Sebastian Siemiatkowski plans to “reshape the industry”. New regulations, he said, are setting the prerequisites for “the destruction” of the industry. The banking industry, he added, is ready for a “Ryanair” to come along and change things.
The regulation to which Siemiatkowski refers is surely PSD2, which will be a key enabler for FinTech firms in the future. PSD2 will take effect in January, and will allow users
ayments startup Klarna was granted a
to switch their providers at the drop of a hat. How Klarna Bank will take advantage of that is yet to be seen.
So far, the Nordic company has hinted at both card issuance and salary accounts but remains tight-lipped on the specifics. “We haven’t taken exact decisions on how to broaden our offering, said Klarna head of communications, Aoife Houlihan. She added that the licence would give Klarna the chance to have direct contact with the Central Bank of Sweden.
“Klarna has played a role in disrupting payments services for the better and now as a consumer-oriented, product driven and technology intensive bank, we have the tools to drive change in retail banking,” Siemiatkowski said in a statement.
“We will do this by providing solutions that ensure a smooth customer experience, help people streamline their financial lives and continue to support businesses by solving the complexity in handling payments.”
A challenging market
Unlike the UK, where a staggering 85% of market share is taken by the top five banks, Europe is a more nuanced region. In Germany, for example, the large banks only account for 25% of the market. The digital battleground is one that is ripe for the taking. In Klarna’s Swedish home market, 83% of 26-35 year olds use their mobile for online banking, while 28% of all age groups used online banking two to three times a week.
The UK market is worth studying for the penetration of challengers into a market. A report from KPMG said that insurgent banks had experienced an 18% hike in profits in 2015. Total pre-tax profits rose by £194 million ($244 million) to £1.28 billion ($1.61 billion) in 2015, while the Big Five (Barclays, HSBC, RBS, Lloyds and Santander) were left nursing a drop of £5.6 billion ($7.06 billion).
www.ibsintelligence.com
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