Back in February 2022, Klarna announced it was incorporating its “Pay in 4” payment option into a physical Visa card issued by WebBank, enabling consumers to use it in stores and online. At that time, they mentioned that interested consumers could join a waitlist to receive the card soon. But, while it’s unclear how many cards were actually issued, the move did not garner overwhelming support from its BNPL-preferred fanbase.
The company has positioned itself as an industry upstart and rabble-rouser, with a target user base primarily among younger spenders. The main appeal of BNPL rests in its interest-free repayment plans, after all. So, a more conventional credit card is outside this core base of interest.
The company is phasing out this credit card, though, replacing it with a “new and improved” version, as per a recently published press release. The revised payment card promises much lower fees and a few key features that are aimed at impressing its established customer base. But can it hope to successfully merge into the traditional credit market with this new card?
What Does Klarna Card 2.0 Offer?
Klarna are maintaining their partnership with card issuers WebBank, as well as Visa, to bring this new card to market. Following the moderate success of the Klarna Card in Europe, Klarna promises this new offering will promote sustainable and flexible payment options, providing a welcome alternative to high-cost credit cards.
The card will feature no monthly or annual fee, though as the release notes, “price and product features are subject to change.” The card can be used anywhere Visa is accepted, including in-store, online, and internationally, and carries zero foreign transaction fees when shopping abroad.
The card has seamless integration with the Klarna app, helping consumers find the best deals and fully integrating with Klarna’s AI Assistant. Plus, sers can earn up to 10% cashback when paying with the card through the Klarna app. The card is also compatible with popular wallet apps like Google and Apple Pay.
The card offers flexible payment options, with no revolving credit offered for the pay-in-installments option or the pay-later option. The only qualifications beyond the user’s credit history include that the cardholder must be a US resident at least 18 years old, and have previously purchased with Klarna and repaid on time at least once.
Is Klarna Card Interest-Free?
In short: no.
Klarna’s main appea has been the option to break up purchases into four interest-free installments. However, this card eliminates the option to pay in four installments, a key feature of the BNPL industry. So, cardholders should be aware that interest is still going to be a factor.
“As long as a customer pays off their balance in full each month, no interest is charged. But if a user wants to pay off their purchase over time in three to six monthly installments, or delay paying for a purchase until the next month, the Klarna Card will charge an interest rate ranging from 14.99% to 33.99%,” says one Klarna representative.
It should be noted, however, that there is no revolving balance with the Klarna card. Users only pay interest on the specific payments they choose, rather than on the entire statement balance, as is common with traditional credit cards. The interest doesn’t compound over time, and each purchase can only be split or “extended” once.
Will the New Klarna Card Attract Younger People to Credit?
It’s possible. Klarna’s credit card could be a big hit with Millennials and Gen Z. To see why, let’s compare it to Affirm’s debit card.
The Affirm Card acts like both a debit and a credit card. Users can choose a payment plan, with either interest-free or interest-bearing options, and pay over time. However, since it’s still a debit card, it doesn’t help build credit history.
69% of Gen-Z regularly use debit cards, compared to just 39% who frequently use credit cards. I believe this preference is mostly due to a lack of understanding about credit cards among this age group.
Gen Z favors debit cards for the financial control they offer and because they often have limited access to credit cards. However, building credit is important for new-to-credit users, especially as they work towards milestones like renting an apartment or buying a home.
In my opinion, while Klarna Card may appeal to the younger generation as a means to break into credit and establish a credit score, there are things younger borrowers need to consider before signing up for this or any credit card. Namely, the aforementioned interest rates, fees, and the presence or lack of revolving credit.
Klarna Card may attract younger borrowers to credit in the near future. But, whether or not it will retain them — or be forced to amend its interest structure — remains to be seen.
