Payments giant Klarna has formally expanded into the UK retail banking sector, rolling out its Klarna Card and Klarna Balance digital wallet following e-money authorisation from the Financial Conduct Authority (FCA) in July. This strategic move positions the company in direct competition with high street and digital banks by focusing on everyday spending, a departure from its brand identity built primarily on “Pay-in-3” and “Pay-later” instalment services.
The launch of the Klarna Card, described as debit-first, is central to this expanded vision. Purchases default to debit mode, using funds held in the customer’s free Klarna Balance e-money account, but consumers can apply for an instalment-based spending plan for certain purchases when credit is appropriate. A Klarna spokesperson, talking exclusively to The Fintech Times, explained that while the company’s savings products remain popular, the addition of a flexible debit card and balance account allows them to support an “ever wider range of their everyday spending needs”. The aim is to help both new and existing customers manage a wider scope of their day-to-day finances, making it easier and smarter to handle transactions.
The Technology Powering Flexibility
The ability to offer this hybrid debit-credit experience is enabled by Visa’s Flexible Credential technology. This network capability allows a single physical or digital card to access multiple funding sources, such as debit or credit accounts, from the same FI.
The spokesperson clarified how this functions operationally. The issuer, in this case Klarna, registers for a programme with Visa, enrolling the card to link to both a primary (debit) and a secondary (credit) funding source. Before a transaction, the customer can toggle the funding source or rely on preset rules to determine which account is used. During the transaction, Visa uses this selected funding source to update the authorisation response to acquirers, and post-transaction, the issuer deducts the amount from the chosen account. This technology gives Klarna a competitive advantage by offering the “simplicity of debit with the flexibility of credit” on a single card.
Driving Customer Engagement and Deposits
This expansion into a more complete financial relationship has already shown strong early results globally. After a pilot launch, the Klarna Card in the US reached one million sign-ups in just 11 weeks. Globally, the company’s card portfolio is driving 10% of total transactions.
The Klarna Balance product, which acts as a digital wallet for storing e-money and receiving refunds, also supports this broader financial ecosystem. The spokesperson noted that the balance product in other markets helped drive a substantial rise in global deposits, from $9.5 billion to $14 billion. This growth, they explained, is a result of consumers appreciating the ease of opening an account, the smooth app experience, and Klarna’s competitive interest rates, fundamentally increasing customer engagement and retention within the platform.
The overall mission is not simply to migrate existing Pay-later users but to capture new daily-spending customers as well, integrating themselves into a wider portion of a consumer’s financial life. Klarna’s vision is to become a personal financial assistant, helping people save time and money by being in control of their finances. David Sandström, Chief Marketing Officer of Klarna, summarised the intent: “Traditional banks have taken the trust out of banking. We’re here to change that”.
