Visa says its strategic investment in Klarna will advance online and mobile commerce across Europe, but observers see broader implications for other global markets, including the U.S.

Instant financing for online purchases has seen rapid growth in the past few years, with Klarna and a pack of startups using emerging technology that quickly assesses borrower risk and integrates smoothly with e-commerce merchants.

Sweden-based Klarna’s checkout button has advanced rapidly with thousands of e-commerce merchants in Europe and a growing number in the U.S. over the last two years, including Overstock.com, which could have banks worried about losing credit card market share. But Visa’s investment in Klarna could change that game.

“Klarna’s checkout features provide Visa with a weapon to counteract the growing number of merchant finance options that can run outside of the Visa payment rails,” said Brian Riley, director of credit advisory services at Mercator Advisory Group. “It’s a terrific investment and depending on how the Visa/Klarna relationship matures, Visa may be able to engineer new offerings and build a meaningful product enhancement to member banks.”

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The timing of the deal is key, potentially providing a path for traditional credit card lenders to catch up to fast-growing alternative credit services like PayPal Credit and Affirm that have been gaining rapid momentum with instant credit and installment loans along with the rise of online and mobile commerce, said David Ritter, a payments and specialty finance analyst at Bloomberg Research.

“With the [exception] of Splitit—which offers payment plans on traditional credit cards—the big Visa and Mastercard credit issuers have been slow to offer their own similar (alternative) payment plans,” Ritter said.

By investing in Klarna, Visa may be trying to stay involved in these new types of payment flows, and the connection looks like it could obviously expand Klarna’s reach outside of Europe and reach new types of consumers, especially in the U.S., according to Ritter.

“Klarna and the range of other online credit providers also pose possible competitive alternatives to retailer-branded credit cards offered by Synchrony, Citi Retail and Alliance Data,” Ritter noted.

Visa for now is focusing its interest in Klarna around its technology and reach to more than 60 million consumers and 70,000 merchants, mostly in Europe.

“Klarna has demonstrated an expertise in consumer credit and online purchasing and together, we share a vision for how today’s online and mobile commerce experiences can be as simple as they are in the real world,” said Jim McCarthy, Visa’s executive vice president for innovation and strategic partnerships, in the release.

Klarna, which obtained a banking license from the Swedish government earlier this month and is formally changing its name to Klarna Bank, sees the deal as a way to expand its global reach and offer new products, said Sebastian Siemiatkowski, Klarna’s co-founder and CEO. “Klarna continually strives to offer the most advanced choice of payment solutions for our merchants and give consumers the smoothest possible buying experiences,” he added in the release.

Klarna, launched in 2005, has raised closed to $400 million in capital from investors including Sequoia Capital, Atomico and others.


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