Afterpay has a fight on its hands as Swedish BNPL Klarna fires 'extortion scheme' shot

Afterpay and Klarna have been exchanging blows over their different businesses this week
Klarna CEO Sebastian Siemiatkowski called Afterpay an “extortion scheme” and called for greater regulation in Australia
Afterpay CEO Anthony Eisen returned serve, slamming the claims as “disingenuous and desperate”

In a niche overspilling with competitors, it seems there’s not enough room for two buy now, pay later (BNPL) giants in Australia.

Afterpay and Klarna have spent this week exchanging blows, after the latter, backed by the Commonwealth Bank, put the boot into the Australian upstart.

On Tuesday, Klarna CEO Sebastian Siemiatkowski accused its number one competitor in Australia of extortionate fees.

“[I’m surprised] people are celebrating the success of some of your local players when they are charging 400 basis points [to retailers],” he told the AFR.

Siemiatkowski went on to suggest that the Reserve Bank not only allow merchants to pass on fees to customers to increase competition between platforms – a decision it will make early next year – but also cap BNPL fees altogether.

“To me, it’s not just about surcharging, it’s about capping – because that’s not a payments scheme any more, that’s an extortion scheme,” Siemiatkowski said, in reference to Afterpay’s current model.

On Thursday, Afterpay fired back, with CEO Anthony Eisen calling the claims out as “disingenuous and desperate”, as it goes toe to toe with Klarna here and abroad.

“We know exactly where they are and they are not out of kilter with us, and even if they were – why are more merchants choosing us then in the US and Australia?” Eisen told the AFR.

In Australia, the divide is stark. Klarna has around 500 merchants signed up in Australia since arriving last year, while Afterpay has gathered 48,000.

But that jab is hardly above the belt considering Afterpay had a five-year head start, before Klarna even launched into what had become a heavily-saturated marke

Consider that in Europe, Klarna is the largest competitor, with Afterpay only gaining a foothold via its acquisition of Pagantis for $US82 million in August this year. It would hardly be a fair comparison to compare its 1,400-odd merchants with most of Klarna’s 200,000.

But that digression aside, Eisen may have a point about the two companies’ fees, with both likely hovering around the 4% mark.

At the end of the day, both companies are taking a large bite out of the margins of retailers, with little choice but to go with the prevailing consumer winds.

What may be more interesting, however, is the fact that the spat is largely unprecedented.

It marks the first war of words between the two, with the BNPL sector appearing largely content to piggyback off Afterpay’s success, not to mention its rocketing stock price, and let it take the heat off regulatory efforts.

Unlike Afterpay’s local competitors, however, Klarna is a very different beast. It has already established itself in Europe – so much so that, at least in terms of size, it’s a fair fight.

Now it’s come to Australia to become, it says, “much more than a buy now, pay later company”.

The Swedish giant is now looking to take more than a small market slice at the same time incumbents like Afterpay look abroad, and particularly to the US, for new growth.

It likely won’t be the last blows the two exchange.