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Barclays goes toe-to-toe with Klarna in buy now, pay later market

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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SYDNEY, AUSTRALIA - NOVEMBER 25: Elliott Garnaut and Nadia Fairfax pose at Klarna's Uncensored Runway at Westfield Bondi Junction on November 25, 2020 in Sydney, Australia. Inspired by the shopping service's current K-Rated brand campaign, guests were able to use their mobile phone to scan QR codes carried by the models to reveal Klarna's ultimate outfits and wish lists. (Photo by Don Arnold/Getty Images for Klarna)
Elliott Garnaut and Nadia Fairfax pose at Klarna's Uncensored Runway at Westfield Bondi Junction on November 25, 2020 in Sydney, Australia. Photo: Don Arnold/Getty Images for Klarna

Barclays (BARC.L) is getting into the fast growing — but controversial — buy now, pay later market. 

The UK bank is extending a deal with Amazon (AMZN) to provide point-of-sale financing for the e-commerce giant. The bank already arranges loans to cover purchases on Amazon's website in Germany but will now provide the service in Britain. Barclays already provides point-of-sale credit for Apple (AAPL) in the UK.

"It's a growing market for us," Barclays chief executive Jes Staley told journalists on Friday.

Credit tailored to individual products and purchases was until recently an unfashionable corner of finance. It was most commonly associated with "rent-to-buy" financing offered to the poor and those with low credit scores. The market was often associated with predatory lending practices, such as those uncovered at now collapsed consumer goods retailer BrightHouse.

Watch: What is a credit rating and why does it matter?

READ MORE: Klarna’s $650m mega-round makes it Europe’s most valuable private fintech

A new breed of online consumer credit players has helped to reinvent the market in recent year, turning it into one of the fastest growing areas of finance. 

Sweden's Klarna, founded in 2005, was an early pioneer. The company lets consumers take out interest free loans online when they go to pay. Its popularity has seen it sign deals with the likes of Asos (ASC.L) and JD Sports (JD.L), and helped Klarna become Europe's most valuable private financial technology company with a price tag of $31bn.

Klarna's success has spawned a host of other so-called "buy now, pay later" companies such as Clearpay and Afterpay. The market is heavily associated with online fashion, rather than big-ticket electronics which dominated the rent-to-buy market. Buy now, pay later purchases in the UK quadrupled last year to hit £2.7bn.

NEW YORK, NEW YORK - OCTOBER 10: Chief Executive of Barclays Jes Staley attends the Yahoo Finance All Markets Summit at Union West Events on October 10, 2019 in New York City. (Photo by Jim Spellman/Getty Images)
Chief Executive of Barclays Jes Staley attends the Yahoo Finance All Markets Summit at Union West Events on October 10, 2019 in New York City. Photo: Jim Spellman/Getty Images

"The payments space is changing rapidly, it's perhaps where technology and digitisation is having the greatest impact on finance," Staley said on Friday. "We want to digitally engage with consumers." 

Staley said Barclays' dominance in both payments and consumer banking presented an obvious opportunity to get into the market. Around a third of all payments pass through Barclays "pipes" and the bank has 24 million consumer customers. 

"We want to take the franchise we have on our consumer business, the franchise we have on our merchant acquiring business and bring the two of them together digitally in order to enhance the experience for both sides," Staley said. 

READ MORE: Watchdog to crackdown on £2.7bn 'buy now pay later' industry

Over the last year the "buy now, pay later" market has attracted scrutiny from regulators who fear the ease of taking out loans could lead people to overextend themselves. Politicians have also sounded the alarm over unaffordable debt. The UK's Financial Conduct Authority said earlier this year there was an "urgent" need to regulate the market.

"I think the FCA and others have recognised that those startup companies also have a responsibility in terms of persistent debt, in terms of affordability, vulnerable clients," Staley said. "I think you'll see a more active engagement between the regulators and that part of the financial network.

"We are already regulated. We're very focused on the affordability of borrowing in any form.

"It's an important market for us but we need to do it prudently and we're very mindful of the end consumer — are they properly using the ability to borrow?"

Watch: Barclays is past restructuring days, CEO says