Finance
Klarna launches bank-like personal account, cashback ahead of IPO
Buy now, pay later firms like Klarna and Block’s Afterpay could be about to face tougher rules in the U.K.
Nikolas Kokovlis | Nurphoto | Getty Images
Financial technology firm Klarna is pushing deeper into banking with its own checking account-like product and a cashback offering that rewards users for shopping via its app.
The company — best known for its buy now, pay later loans that let consumers pay for purchases via interest-free monthly installments — said Thursday that it is launching the new products as it seeks to “disrupt retail banking” and encourage customers to move their spending and saving onto its platform.
“These new products make it easier for customers to manage multiple scheduled payments, helping our customers use Klarna for more frequent purchases and driving loyalty,” Sebastian Siemiatkowski, Klarna’s CEO and founder, told CNBC.
Siemiatkowski said that Klarna wants to “support all consumers with their everyday spending,” adding that the products will allow people to “earn money while they shop and manage it in a Klarna account.”
The two new products, which are being rolled out in 12 markets including the U.S. and across Europe, will show up in the Klarna app as “balance” and “cashback.”
Klarna balance lets users store money in a bank-like personal account, which they can then use to make instant purchases and pay off their buy now, pay later loans.
Users can also receive refunds for returned items directly in their Klarna balance.
Cashback offers customers the ability to earn up to 10% of the value of their purchases at participating retailers as rewards. Any money earned gets automatically stored in their balance account.
It’s not Klarna’s first foray into more traditional banking; the company has offered checking accounts and savings products in Germany since 2021.
Now, the company is expanding these banking products in other markets.
Customers in the EU — where Klarna has an official bank license — will be able to earn as much as 3.58% interest on their deposits. Customers in the U.S., however, will not be able to earn interest.
The launch marks a major step up in Klarna’s product range as the fintech giant edges closer toward a much-anticipated U.S. IPO.
Klarna has yet to set a fixed timeline for the stock market listing. However, in an interview with CNBC’s “Closing Bell” in February, Siemiatkowski said an IPO this year was “not impossible.”
“We still have a few steps and work ahead of ourselves,” he said. “But we’re keen on becoming a public company.”
In the meantime, Klarna is in discussions with investors about a secondary share sale to provide its employees with some liquidity, a person familiar with the matter told CNBC.
Klarna’s valuation on the open secondary market is currently in the high-teen billions, said the source, who was speaking on condition of anonymity as details of the share sale are not yet public.
Israel Sebastian | Moment | Getty Images
Investors who hold exchange-traded funds can often escape a tax bill incurred by those with mutual funds, which are generally less tax efficient, according to investment experts.
ETFs and mutual funds are baskets of stocks, bonds and other financial assets overseen by professional money managers. But they have a different legal structure that bestows ETFs with a “tax magic that’s unrivaled by mutual funds,” Bryan Armour, the director of passive strategies research for North America and editor of the ETFInvestor newsletter at Morningstar, wrote this year.
That tax savings relates to annual capital gains distributions within the funds.
Capital gains taxes are owed on investment profits.
Fund managers can generate such taxes within a fund when they buy and sell securities. The taxes then get passed along to all the fund shareholders, who owe a tax bill even if they reinvest those distributions.
The ETF tax advantage is by virtue of “in-kind creations and redemptions,” which essentially provides for tax-free trades for many ETFs, experts explain. (The ETF’s in-kind transaction mechanism is somewhat complex. At a high level, it involves large institutional investors called “authorized participants,” which create or redeem ETF shares directly with the ETF provider.)
The tax advantage is generally most apparent for stock funds, they said.
For example, more than 60% of stock mutual funds distributed capital gains in 2023, according to Morningstar. That was true for just 4% of ETFs.
Less than 4% of ETFs are expected to distribute capital gains in 2024, Morningstar estimates. Such data isn’t yet available for mutual funds.
Importantly, this tax advantage is only relevant for investors holding funds in taxable accounts, experts said.
It’s a moot point for retirement account investors like those with a 401(k) plan or individual retirement account, which already come with tax benefits, experts said.
The tax advantage “really helps the non-IRA account more than anything,” said Charlie Fitzgerald III, a certified financial planner based in Orlando, Florida, and a founding member of Moisand Fitzgerald Tamayo.
“You’ll have tax efficiency that a standard mutual fund is not going to be able to achieve, hands down,” he said.
However, ETFs don’t always have a tax advantage, experts said.
For example, certain ETF holdings may not be able to benefit from in-kind transactions, Armour said.
Examples include physical commodities, as well as derivatives like swaps, futures contracts, currency forwards and certain options contracts, he said.
Additionally, certain nations like Brazil, China, India, South Korea and Taiwan may treat in-kind redemptions of securities domiciled in those countries as taxable events, he said.
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