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Buy now, pay later provider Klarna AB announced early Monday it is partnering with digital wallet provider OnePay to be the exclusive provider of installment loans to Walmart Inc.’s customers in the United States.
Klarna is replacing rival Affirm Holdings Inc. as the retailer’s installment loan provider. Affirm had been providing installment loans to Walmart since 2019. A digital wallet and cashback platform, OnePay is owned by Walmart and Ribbit Capital, which specializes in investing in fintechs. The deal comes as Klarna is preparing for a U.S. initial public stock offering.
Klarna will underwrite loans to Walmart customers in stores and online through the OnePay platform, while OnePay will manage the customer experience. Walmart customers approved for a loan will have repayment options of three to 36 months and can manage their loan through the OnePay app. Interest rates on those loans will reportedly range from 10% to 36%.
Despite losing a major retail customer in Walmart, the deal is not expected to deliver a substantial blow to Affirms business, William Blair analyst Andrew W. Jeffrey says in a research note on the deal. Jeffrey says that none of Affirms customers equal 10% of its business and that “we believe that Walmart’s [gross merchandise value] and revenue contribution is smaller than that of other major retail partners. As a result, we see limited risk to our revenue estimates.”
Jeffrey calls Klarna’s deal with Walmart, in which the retailer will handle the customer experience for installment loans “antithetical to Affirms commitment to provide first class customer experience. We cannot envision a situation in which Affirm would cede control over its brand and consumer experience to a third party,” Jeffery says.
It is likely that Klarna made pricing concessions to win the business, Jeffery adds. “Historically, fintechs doing business with Walmart have struggled to maintain consistent profitability, in our opinion, owing to meaningful customer concentration and long-term price pressure. In many ways, we think this deal is an aberration, rather than an indication of heightened BNPL price competition,” Jeffery says.
Jeffery concludes that Walmart is not the best fit as a customer for Affirm. “Because Affirms loans are mostly interest bearing, it has probably been growing faster with other large merchants than with Walmart, whose customers we see as more apt to use Pay In products,” Jeffery says.
