Dive Brief:

• Eyeing debit cards as a growth tool, card issuer Marqeta has partnered with Swedish buy now-pay later provider Klarna to create a new physical Klarna card that lets shoppers pay in four bi-weekly, interest-free installments for their online and in-store transactions, according to a Wednesday press release.
• Marqeta currently lets Klarna customers generate one-time digital cards within the BNPL provider's app. The new Klarna card is available to consumers in the U.S., which is Klarna’s fastest-growing market, according to the release. It is a debit card, a Marqeta spokesperson said.
• Marqeta’s card issuing platform lets Klarna onboard new accounts, issue physical and virtual cards and add them to digital wallets so that shoppers can make purchases immediately after their credit approval, per the announcement.

Dive Insight:

Klarna’s relationship with Marqeta began in 2018 when the two teamed up to start issuing virtual cards in the U.S. In December 2021, they announced plans to issue virtual cards across 13 European countries. The buy now-pay later giant is relying on Marqeta’s payments tools to grow its U.S. presence.

Klarna continues to release physical cards for shoppers in the U.S. after doing so in Europe. In February, Klarna partnered with WebBank to issue physical Visa cards in the U.S. after piloting the cards in the U.K., Germany and Sweden. The cards issued by WebBank also offered a “Pay in 4” payment option for online and physical store purchases. 

“By working with Marqeta, we were able to quickly launch a brand new card program with seamless flexibility and controls,” David Sykes, chief commercial officer at Klarna, said in a statement. This expansion with Marqeta "will ultimately help our business grow,” he added.

Meanwhile, the broader payment industry has eyed the expanding BNPL installment market. In July 2021, Visa introduced buy now, pay later options for cardholders transacting with Canadian merchants. Visa CEO Al Kelly noted last year that installment payment providers need Visa’s global network to reach more consumers. 

Klarna competitor Affirm has been planning to issue debit cards since last year as part of its growth strategy. Affirm announced on Tuesday that it is partnering with Stripe to offer its checkout tool and installment payment services to Stripe merchants.

The timing is critical, because a report from Juniper Research estimates that the BNPL market will grow to $995 billion internationally by 2026.

But after raising $639 million last June to support its international expansion and offer more payment options, Klarna is cutting back amid increasing costs and regulatory scrutiny. Last month, the company laid off 10% of its workforce, a decision which Klarna CEO Sebastian Siemiatkowski attributed to the Russian invasion of Ukraine, a change in consumer sentiment, stock market fluctuations and a possible recession.

Klarna and its BNPL competitors have also faced rapid growth in their operating costs as they rush to capture the market. Other BNPL competitors have seen an uptick in late payments, The Wall Street Journal reported. 

In addition to rising operating costs and challenging market conditions, the industry also is under scrutiny by researchers and regulators seeking to understand its risks to consumers. Klarna and Affirm said they complied with the Consumer Financial Protection Bureau’s request for information regarding their business practices.

In the U.K., researchers warned that BNPL services could result in consumers getting trapped in a “debt spiral."