Original text here from Patrice Bernard (LinkedIn)
Despite the introduction of payment interfaces through bank accounts in the UK in 2018 and mandated across Europe by the Payment Services Directive (PSD2) the following year, their use has remained limited due to a lack of a user-friendly experience. However, Klarna is leveraging this and the situation could change.
Until now, raw payment solutions based on open banking have been somewhat cumbersome to implement. To make a payment, the process starts with a click that transfers control to the buyer's bank app, requiring two-factor authentication, followed by transaction validation which may need its own strong authentication, before returning to the merchant site for final confirmation.
In Klarna's implementation, which is similar to those of other players aiming to develop a generic payment instrument over this mechanism, customers are prompted to connect their bank account in advance. This setup simplifies the payment process as it eliminates the need to request access authorization with each transaction. In this approach, the BNPL (Buy Now, Pay Later) giant is ideally positioned to capitalize on this opportunity.
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Indeed, where newcomers struggle to deploy their product among merchants who are hesitant to add another terminal or payment option (for a necessarily limited audience initially), Klarna has the advantage of already being widely present on merchant sites and stores (32,000 in the UK, as per the recent announcement), which will benefit instantly and seamlessly from this addition.
Moreover, the company has a compelling reason for consumers to share access to their accounts as it is offered right from the start for a different function: analyzing transaction history to assess behavioral profiles and offer the best financing conditions. Once the bank connection is established, why bother with registering a debit card?
Today, Klarna offers bank account payments in about ten countries, like Germany through the local system Sofort, but utilizing regulatory interfaces should accelerate its widespread adoption, particularly within the European Union. In the UK, this method has recently been enabled for cash payments and will soon be available for deferred options later in the year. Given the potential savings from bypassing card networks, it is likely to be heavily promoted to customers, which should boost adoption and highlight a still underexplored and poorly mastered opportunity in open banking.
