Klarna Bypassing Visa and Mastercard

This is really a margin story disguised as a product story. Every time Klarna can move a payment straight from a shopper’s bank account to a merchant, it removes card network tolls that normally sit between buyer and seller. That matters because BNPL economics are thin, so even a roughly 1 percent reduction in processing cost can lift profit meaningfully without needing more users, more merchants, or higher take rates.

• Klarna had the building blocks unusually early. It bought Sofort in 2014 for direct bank transfers, then expanded open banking access across 24 countries and more than 6,000 banks under PSD2 rails. That gave Klarna a way to offer pay by bank inside the same checkout flow where it already offers BNPL.
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• The savings come from skipping the normal card chain. In a card payment, the merchant pays several middlemen, including the issuer, processor, sponsor bank, and Visa or Mastercard. In account to account payments, more of that stack disappears, so the merchant pays less and Klarna keeps more of its merchant fee as margin.
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• The catch is adoption. Open banking was still early in 2021, and later industry interviews argued that pay by bank works best only in certain markets and use cases because cards are easier for consumers and come with rewards. That means the cost advantage is real, but it takes time to convert into large scale volume.
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Where this heads next is toward Klarna becoming less of a BNPL button and more of a payment rail. If it can make direct bank payments feel as easy as cards at checkout, Klarna gets cheaper funding of transactions, better bank account data for underwriting, and a stronger position with merchants that increasingly care about payment cost as much as conversion.