Klarna Teams With GoCardless to Ease Installments Via Account-to-Account Transfers

Sweden’s Klarna AB has 21 million users in the U.S. market for its buy now, pay later app, but it wants a lot more. On Tuesday, it announced it will ease payments for its users by letting them pay off installments via direct transfers from their bank account. The service relies on technology from London-based GoCardless Ltd., a specialist in the burgeoning field of account-to-account transfers.

The new payment channel, which relies on the rapidly growing trend toward open banking, will allow Klarna users to make their Pay in 4 installment payments as well as monthly payments through Klarna’s financing product, the company says. As with most BNPL options, Pay in 4 allows consumers to pay off purchases with four equal installments over six weeks at no interest.

Interest in open banking has increased in recent years as merchants and payments providers seek out alternatives to traditional card and automated clearing house transfers. The service typically relies on an application programming interface to access consumers’ accounts to verify ownership and funds availability. GoCardless in April relied on the technology to launch its Instant Bank Pay open-banking app. The company, which has U.S. offices in both New York and San Francisco, also offers transfers via ACH.

The latest announcement does not represent the first time Klarna has worked with GoCardless. The two companies launched a similar service three years ago in the United Kingdom. “From the start, it was clear one of our value-adds was our global bank debit network, enabling Klarna to access multiple markets through a single platform,” said Hiroki Takeuchi, GoCardless’s co-founder and chief executive, in a statement Tuesday. The company entered the U.S. market in 2019 and says it has doubled its headcount in the country this year, with a further 125% expansion planned for 2022.

Both companies see account-to-account transfers growing in reaction to what they see as U.S. consumers’ gradual movement away from traditional credit cards and what the companies view as high interest rates. “Over the next few years we expect account-to-account payments to challenge the dominance of cards as they tap into changing consumer demand and provide merchants significant benefits in terms of cost, conversion, and churn,” said Takeuchi, in a statement.

For its part, Klarna has established itself globally as a dominant player in the increasingly competitive BNPL market. Measured by app downloads, the company claims slightly more than half the market globally when compared to competitors Afterpay, Affirm, Zip, and Sezzle, according to data from Apptopia, a market research firm. In November, Klarna launched a new app that lets consumers use its BNPL service regardless of whether the store is a Klarna merchant. The service relies on so-called one-time cards that enable transactions at any online merchant.