Klarna, PayPal push in-store spending with new cards

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Payment companies are looking beyond the digital realm for growth, with two major players starting their own card products for consumers shopping in brick-and-mortar stores.

The Swedish buy now/pay later fintech Klarna and payments giant PayPal on Tuesday separately launched their own co-branded payment cards designed to expand the reach of their lending products to transactions outside of their immediate ecosystem. It also puts them in competition with established credit card issuers such as JPMorganChase and Capital One.

"It really cements the brand into a physical, tangible thing," Ben Danner, a senior analyst with Javelin Strategy and Research, told American Banker. "It's not an app on my phone that I could lose with perhaps the five other apps I have for making payments. Now I've got this card in my wallet, and it can compete with some of the other cards in my wallet." 

Both companies are hoping that the card offerings will put them at the proverbial top of wallet to drive more spending and incremental credit sales to their platforms while at the same time building brand loyalty. BNPL provider Affirm has seen a meteoric uptake with its debit card product, which more than doubled from a year ago to $807 million of gross merchandise in the three months ended March 31, according to Affirm's earnings report.  

Klarna teams with Visa for Flexible Credential debit card

Klarna has partnered with Visa to launch a debit card complete with Flexible Credentials that allow customers to pay now via debit rails, or pay later using BNPL, similar to Affirm's debit card. The program is in a pilot phase in the U.S. ahead of a broader launch stateside and in Europe later this year, according to Klarna.  

WebBank serves as Klarna's sponsor bank, issuing the debit cards and holding the deposit accounts for consumers. 

"We consistently hear from consumers that they want the freedom to choose how and when to pay — whether that's paying now with debit or spreading the cost over time," David Sandström, chief marketing officer at Klarna, said in a statement. "They want simplicity, flexibility and transparency — all in one place. That's exactly what has made Klarna payment methods so popular online, and now that same experience is coming to a physical card."

The card brings Klarna's BNPL offering to 150 million merchants globally, according to Visa. 

That's a big growth driver for Klarna, said Aaron McPherson, principal at AFM Consulting. 

"It gives them a way to touch customers and be more central to their financial life more than just the once in a while, pay over time. It puts them on the path towards being a neo-bank," McPherson told American Banker. "Having established a beachhead in pay later, they're now going for the deposit business.

"I think we'll see more cards of this type coming down the pike," he said. 

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Klarna does not have a banking license in the U.S., but it does have a full banking license in the European Union. 

Klarna's venture into the debit-card space comes at a time when more financial institutions are looking for ways to enhance their debit products and keep consumer spending in house. Affirm in February partnered with FIS to offer embedded BNPL through FIS-issued debit cards, and credit unions have also been exploring ways to offer BNPL through their own debit cards. 

"Buy now, pay later was really popularized over COVID, but a lot of them didn't have principal ways to pay," Javelin's Danner said. "And now, five years out, they're really kind of catching the bug." 

PayPal launches co-branded Mastercard to expand credit offering

PayPal's new co-branded Mastercard is also designed to expand the reach of its once digital-only credit products to brick-and-mortar retailers. The physical card will be rolled out "in the coming weeks" to eligible consumers, the company said. 

The card, which is issued by Synchrony Financial, allows consumers to use PayPal Credit wherever Mastercard is accepted. PayPal Credit is a digital, revolving line of credit that consumers can use for online purchases. Consumers will also have the option to apply for BNPL loans at checkout.  

"PayPal Credit is one of our most popular products and customers have long been requesting the ability to use it on-the-go as they look for more choice and flexibility wherever they shop," Scott Young, senior vice president and global head of consumer financial services at PayPal, said in a statement. 

The move will help PayPal strengthen its network, generate finance receivables and incremental payment volume as it establishes its utility more offline, Eric Grover, principal at Intrepid Ventures, told American Banker. 

"PayPal has so far not been terribly successful in expanding their network to provide acceptance at the physical point of sale, but they keep going at it, and that's good," Grover said. 

PayPal is offering six months of promotional financing on travel purchases to help drum up interest in the card. The payment network also offers its PayPal Cash Back Mastercard, a credit card that offers 3% cash back on PayPal purchases and 1.5% cash back on all other purchases.