Klarna applies for banking license in the US: BNPL giant makes leap into traditional banking

What happened?

Klarna, the Swedish 'buy now, pay later' (BNPL) company, has formally applied for a banking license in the United States. According to Tech.eu, as reported by The Next Web, the company submitted the application to regulators in Utah, a state known for its favorable regulatory framework for fintechs. If approved, Klarna could operate as a commercial bank in the US, offering products such as savings accounts, personal loans, and credit cards. The choice of Utah is no coincidence: the state is home to the Utah Department of Financial Institutions and has been a magnet for companies like SoFi and Galileo Financial Technologies. This move comes after the Biden administration withdrew a proposal to strictly regulate BNPL, creating a more permissive environment.

Why is this important?

This move represents a radical shift in Klarna's strategy. Until now, the company has focused on BNPL, a model that has faced regulatory scrutiny in several countries for its potential to encourage over-indebtedness. By becoming a bank, Klarna could diversify its revenue streams, access cheaper funding through FDIC-insured deposits, and offer a complete financial ecosystem including checking and savings accounts. Moreover, the application comes at a time when the US administration appears more open to fintech innovation, which could pave the way for other European companies. Klarna has already taken steps in this direction in Europe: in 2023, it launched savings accounts in Sweden and Germany, and in 2024, it obtained a banking license in the UK. However, the US represents a much larger and more competitive market, with a fragmented banking system and high credit card penetration. According to Fed data, revolving credit in the US exceeds $1.2 trillion, offering enormous growth potential for Klarna if it can offer alternatives with lower interest rates.

Consequences and context

If approved, Klarna would compete directly with traditional banks like JPMorgan Chase and Bank of America, as well as neobanks like Chime and Current. However, the path will not be easy: obtaining a banking license in the US involves meeting strict capital, liquidity, and regulatory compliance requirements. Klarna has already faced difficulties in other markets: in 2023, its German bank was fined €50 million for deficiencies in anti-money laundering. In the US, the company has faced class-action lawsuits for alleged violations of consumer protection laws, including a 2022 lawsuit claiming its collection practices violated the Fair Debt Collection Practices Act. Additionally, the Consumer Financial Protection Bureau (CFPB) has expressed concern about BNPL, issuing a 2022 report noting that BNPL users had higher reuse rates than traditional credit card users. Although the CFPB has not yet issued formal regulations, it could impose strict conditions on Klarna's license, such as interest rate caps or clearer disclosure requirements.

The US BNPL market is dominated by Affirm, Afterpay (owned by Block), and PayPal. Klarna, though a global player with over 150 million users, has a smaller market share in the US, estimated at around 10% according to CB Insights data. Obtaining a banking license would allow it to offer higher-margin products like installment personal loans and build a more direct relationship with consumers, reducing its reliance on merchants. Currently, Klarna generates revenue mainly through merchant fees (typically 3-6% per transaction) and late fees. As a bank, it could earn interest income from loans and savings accounts, as well as service fees. This is crucial in a context where interest rates have risen, making funding more expensive for fintechs that rely on bank credit lines. Klarna has already seen its valuation drop from $45.6 billion in 2021 to around $6.7 billion in 2024, according to PitchBook, and has conducted two rounds of layoffs affecting 10% of its workforce. The banking license could be a step toward profitability.

What should readers know?

• Not an immediate approval: The regulatory process can take months or even years. Klarna must demonstrate solvency and risk management capability. The application in Utah involves review by the Utah Department of Financial Institutions and subsequently by the FDIC and the Federal Reserve. Klarna must maintain a capital ratio of at least 8% of risk-weighted assets under Basel III standards.
• Possible regulatory reaction: The CFPB has expressed concern about BNPL and could impose strict conditions, such as interest rate caps or clearer disclosure requirements. Additionally, the Federal Reserve might require Klarna to establish a separate bank subsidiary from its BNPL business to avoid contagion risks.
• Impact on consumers: If Klarna becomes a bank, users could access FDIC-insured savings accounts up to $250,000 and loans with potentially lower rates than BNPL. For example, while BNPL interest rates are typically 0% if paid on time, personal loans could have annual rates of 10-20%, comparable to credit cards. However, consumers should watch for potential hidden fees, such as account maintenance charges.
• Expansion strategy: Klarna already operates in the US as a non-bank lender through its subsidiary Klarna Inc. The banking license would allow it to accept deposits and reduce its cost of capital. Currently, Klarna funds its loans through bank credit lines and securitizations, with an estimated cost of capital of 8-10%. With deposits, it could reduce that to 2-3%, significantly improving margins.
• Competition: Affirm and Afterpay could follow the same path if Klarna succeeds, accelerating the convergence between fintech and traditional banking. In fact, Affirm has already applied for a banking license in 2024, though it is still pending approval. PayPal, meanwhile, already operates as a bank in Luxembourg and could expand to the US if the regulatory environment allows.

"Klarna wants to be a true American bank. The bet is that a friendlier Washington will allow it to penetrate a market that has left its European rivals bruised," notes The Next Web. This phrase sums up Klarna's ambition, but also the risk: the US market is notoriously difficult for European banks, as evidenced by the failures of Deutsche Bank and HSBC in the past. However, the current context is different: the Trump administration has shown a favorable attitude toward cryptocurrencies and fintechs, and the CFPB under Republican leadership could be less aggressive. Still, Klarna will have to navigate a complex legal landscape, including state usury laws that vary significantly. For example, in some states like Texas, interest rates for personal loans are capped at 10%, which could affect Klarna's profitability.

In summary, Klarna's banking license application is a milestone that could redefine the fintech sector in the US. If successful, it will not only transform Klarna but could also drive other fintechs to seek similar licenses, accelerating banking disintermediation. However, success will depend on the company's ability to navigate the complex regulatory environment and compete with established players that already have loyal customer bases and economies of scale. The coming months will be crucial in determining whether Klarna can become the first major European digital bank in the US or join the list of frustrated ambitions.