Buy now, pay later shopping app Klarna, which lets you buy from any store with no late fees, has launched in Australia. Here's how it works.

Image: Klarna

• Klarna, the Swedish buy now, pay later platform launched in Australia on Thursday.

• The shopping app works with all retailers and does not currently charge late fees to consumers.

• Building retail partnerships will be key to Klarna's revenue growth in Australia.

• Visit Business Insider Australia's homepage for more stories.

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The Swedish buy now, pay later platform Klarna, which is the largest private fintech in Europe, launched in Australia on Thursday.

The latest in a long line of point-of-sale loan platforms, Klarna launched their product to the Australian market with a media and industry event in Sydney hosted by CEO Sebastian Siemietkowski on January 30.

There's a range of point-of-sale loan companies – which offer customers easily-accessible loans at the checkout – fighting for customers in Australia already, including Sezzle, Zip Pay and Afterpay. In July last year, Sezzle listed on the ASX following its oversubscribed $43.6 million initial public offering. While, the local success story, Afterpay, has grown quickly in Australia and is now focused on its ambitious global growth plans.

Klarna, though, is a veteran in the space compared to Afterpay. It launched in 2005, has more than 3,000 employees, 190,000 merchants on its platform and has a presence in 19 countries. Some of the biggest retailers in the world have partnerships with Klarna globally, including Adidas, IKEA, Expedia, Samsung, ASOS and Nike.

The company said in a press release it has brought in USD$29 billion in underlying sales in 2018 and added 26 million new consumers in 2019. For comparison, Afterpay hit the 5 million customer mark in August, according to the AFR, and brought in $5.2 billion in underlying sales over the 2019 financial year.

Prior to launch, Klarna set up a Sydney office and added a section for Australian shoppers to its website. On Thursday, it rolled out a local app on both iOS and Android.

How Klarna works

Image: Klarna

Klarna allows users to purchase products in a retailer's online store via their fancy-looking shopping app by simply clicking the "pay with Klarna" button. Once a product is purchased, the customer pays off the purchase to Klarna in four interest-free payments, while the retailer receives the full amount immediately.

A credit check will be run on customers joining Klarna and an individual credit limit applied, which increases gradually as you buy more through the app.

If a retailer is not a partner of Klarna, you can still purchase from their website via the app using a "ghost card", which is set up in the app with your funds on it. You will then pay Klarna back for the purchase.

A Klarna spokesperson confirmed to Business Insider Australia there will be no late fees charged at launch, despite these being listed in the company's terms and conditions. When pressed, the spokesperson confirmed the company may introduce these in time, but customers will be advised of the rollout.

In the terms and conditions Klarna notes if you don't pay within the four payments, you will be charged small late fees: $3 per instalment for a purchase under $100 and $7 per instalment for a total order amount more than $100. This means if late fees were implemented, you can be charged a maximum $28 in late fees per purchase.

The terms and conditions also state the company may prevent customers who don't pay on time from using the service and potentially involve a debt collecting agency.

"If you fail to make your payments you may be unable to use the service in the future. We may continue to attempt to collect overdue and currently due payments on subsequent due dates, or invoice you separately for the unpaid total," Klarna states in its terms and conditions.

The Klarna spokesperson advised the company believes blocking people from making purchases on the app until they can pay the debt will encourage people to pay on time.

Due to this, the current set-up by Klarna in Australia is a lower risk for consumers than Klarna's terms globally. In Europe, the company provides loans over six, 12 or 36 months – and charges an 18.9% variable interest rate to customers who have not paid within the agreed payment term.

The company confirmed it will not launch with an interest rate on default payments in Australia – nor will it carry the option for six, 12 or 36-month loans.

Klarna collects your digital receipts for easy reference, and you can also track purchases in your wish list and get an alert when the price of the product drops below a threshold you set.

Klarna is focused on retail partners, not late fees

According to a Klarna spokesperson, the company is yet to announce any local retail partnerships.

Retail partnerships will allow Klarna to charge merchants a fee on each purchase and integrate with online checkouts without a consumer purchasing through the Klarna app and roll out in-store checkouts, much like Afterpay.

The building of local retail partnerships will be key to revenue growth in Australia, as Business Insider Australia understands that Klarna does not consider late fees a core revenue stream.

And, it appears, the company may have a plan to muscle out its local buy now, pay later competitors – such as Afterpay, which already has 42,500+ local retail partners – by undercutting them on merchant fees.

According to the Sydney Morning Herald, Klarna charges merchant 2.2% compared to Afterpay's 5% charge. With no retail partners currently on board, it's a long-game bet for the company but as a company valued at $5.5 billion, Klarna has the financial backing it needs to move slowly.

Commonwealth Bank invests heavily in Klarna, with a total $US300 million investment

As the company launched in Australia, the Commonwealth Bank injected $US200 million in Klarna. It followed an initial $US100 million investment, which was part of a wider capital raise by the company. The Commonwealth Bank is Klarna's official partner in Australia.

The Commonwealth Bank's chief executive officer Matt Comyn said in a statement the investment will "increase strategic alignment, bring additional rights, and gain exposure to Klarna’s international growth."

“By partnering with Klarna, we are bringing together our market leading digital technology, merchant relationships and strong customer network with Klarna’s innovative payments technology and integrated shopping experience for the benefit of CBA customers and many more Australian consumers," Comyn said.

With the backing of Australia's biggest bank, Klarna will bring a new variation to the buy now, pay later sector in Australia. It will be interesting to see how and if they achieve success in the crowded Australian market.

CLARIFICATION: Thursday, 30 Jan, 2020: This article originally stated Klarna charged an 18.9% interest rate on overdue payments in Europe. This only applies to missed payments when a customer is on a 6, 12 or 36-month payment plan.