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October 19, 2021

Did Klarna copy the idea of paying for something when you buy it?

By Eric Johansson

Zilch’s CEO is accusing Klarna of copying a feature from the smaller buy-now-pay-later (BNPL) startup, despite the Swedish fintech company having had the service in several markets before its UK launch.

Yesterday, the Scandi quadradecorn unveiled its latest feature “Pay Now”, which was widely interpreted as an attempt at appeasing UK regulators ahead of an expected Treasury crackdown of the BNPL sector.

Regulators have previously expressed concerns that customers using BNPL services are putting their financial health at risk.

The feature Pay Now enables Klarna users to pay the full amount of a product at the checkout using the same payment service as if they had paid in instalments.

Klarna also introduced a number of new initiatives designed to make shopping with the BNPL business safer.

The news comes as the BNPL market is expected to grow to be worth $166bn by 2023, according to GlobalData’s thematic research.

Did Klarna copy Zilch?

While Klarna has launched the Pay Now product elsewhere before introducing it to UK shoppers, the CEO of smaller rival Zilch believes the $45.6bn fintech has drawn inspiration from a similar Zilch service.

“It certainly seems as if Klarna is taking a lot of inspiration from Zilch,” Philip Belamant, founder of Zilch, tells Verdict. “Zilch pioneered our product, ‘Zilch Now,’ which is exactly this product. You can check out and pay everything at checkout and actually receive cash backs or discounts.”

Today, payments via Zilch Now represent “more than 15%” of the startup’s daily sales.

“We’re very excited and flattered that they take inspiration from what we’re doing and I think it can only be a good thing for end consumers that that they offer something like this,” Belamant says. “I’m not sure what they plan to do with it. But yes, ultimately, I think it’s responsible that you allow the customer the option to pay everything now and not only have deferred payment options.”

At the same time, the Zilch CEO admits that his startup has drawn inspiration from Klarna and other big BNPL businesses like Afterpay in the past.

“The advantage we have being a young company coming to the market when we have is we have the benefit of hindsight,” Belamant says. “We get to see what other businesses have done, and what we like about that and what we don’t.”

Klarna denies having copied the idea from Zilch, instead pointing to the fact that the service had been live in other countries long before being launched in the UK. With the British launch, the Pay Now service is available across 15 markets.

“It brings the UK into line with our other markets,” a Klarna spokesperson tells Verdict. “So if we’ve taken inspiration from anywhere, we’ve taken inspiration from our other markets, from ourselves, which is not to say that we don’t look at the market and we don’t pick up great ideas from the market. But it’s not the case this time around.”

This is not the first time Zilch’s founder has claimed that Klarna has drawn inspiration from his startup.

In June, Klarna rolled out its new Shopping app in the UK providing users with access to BNPL services wherever they shop online.

Belamant suggested the competitor had basically copied Zilch’s similar solution where people can shop at any vendor even if the merchant is not signed up with the startup.

Klarna denied it at the time, with a spokesperson telling Verdict: “This service has been live across key markets, including the United States, for over two and a half years. There are more than 18 million users in the US alone and the app was one of the 10 most downloaded shopping apps in 2020.”

Zilch was founded in 2018. The startup secured an $80m Series B round in April at a $500m valuation. It extended the round in late July by adding another $110m.

Klarna is paving the way for digital banking

While several publications have pointed out that the new service comes as regulators are set to clamp down on the BNPL market, the move arguably also lays the groundwork for Klarna’s bigger vision for Blighty.

Pay Now is part of Klarna’s digital banking services and is linked to its acquisition of payment processing startups Sofort and BillPay in 2014 and 2017 respectively. In those markets, Pay Now is done via a direct bank transfer.

The UK version will only work as a credit card payment, but a Klarna spokesperson tells Verdict that it could also lay the groundwork for eventually introducing the digital banking services in Britain.

This would include launching services like the deposits and savings accounts Klarna has elsewhere in Europe. While the spokesperson notes that expansions like these are certainly part of Klarna’s vision, there are “no immediate plans yet” to launch them in the UK.

Apart from Pay Now, Klarna also introduced a package of other initiatives seemingly designed to give customers more control over their financials.

These included open banking technology-powered credit checks, simplified checkout language, more ways of fair redress for consumers and removing late fees on its regulated financing product.

“We firmly believe that most of the time, people should pay with the money they have, but there are certain times where credit makes sense,” said Sebastian Siemiatkowski, Klarna’s co-founder and CEO.

“In those cases, our BNPL products offer a sustainable and no cost healthy form of credit – and a much needed alternative to high cost credit cards. The changes we are announcing today mean that consumers are fully in control of their payments whether they pay now or pay later.”

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