Klarna Secures UK FCA License, Launches Banking Services with 10% Cashback

Klarna, the Swedish fintech renowned for its buy now, pay later (BNPL) services, has significantly bolstered its strategic presence in the United Kingdom. Its UK division recently secured an electronic money institution license from the Financial Conduct Authority (FCA), a pivotal regulatory approval that positions the company to evolve into a broader financial services provider, extending beyond its established payment offerings.

• Klarna’s UK division obtained an electronic money institution license from the Financial Conduct Authority (FCA).
• This license enables Klarna to offer comprehensive banking-like services in the UK, including debit cards and dedicated accounts with up to 10% cashback.
• The move signifies Klarna’s deep commitment to the UK market post-Brexit, transitioning from the FCA’s Temporary Permissions Regime (TPR) to a new UK-based entity.
• The strategic expansion coincides with Klarna’s preparations for a second attempt at a New York IPO, following previous postponements.
• Klarna reported a significant loss of $99 million in Q1 2025 and a substantial 85% reduction in its valuation from its 2021 peak, underscoring the urgency for diversification.

Expanding Financial Services in the UK

With this new license, Klarna is now authorized to provide UK customers with a comprehensive suite of banking-like services. These offerings include debit cards and dedicated Klarna accounts, empowering users to save, manage funds, top up their cards, make purchases, and receive money. A notable feature is the potential for up to 10% cashback on purchases, designed to incentivize usage. This strategic expansion intensifies competition within the UK’s burgeoning digital banking sector, directly challenging established fintech players such as Revolut and Monzo, as Klarna aims to transform into an everyday financial partner for consumers.

Navigating Regulatory Landscape

Klarna’s journey to securing this license underscores its unwavering commitment to the UK market, particularly in the post-Brexit environment. Following the United Kingdom’s departure from the European Union, Klarna Bank AB, the company’s fully licensed Swedish banking entity, had been operating under the FCA’s Temporary Permissions Regime (TPR). In a move to streamline its regulatory structure and solidify its UK operations, Klarna established a new UK-based entity in 2023 to manage its consumer-facing services. Abby Vickers, head of Klarna Financial Services UK, emphasized that this authorization is fundamental for the development of future products and reinforces Klarna’s long-term ambition to disrupt conventional retail banking.

Strategic Pressures and Global Ambitions

This strategic pivot unfolds as Klarna reportedly prepares for its second attempt at a New York initial public offering (IPO), the first having been deferred amidst market turmoil and external factors. The company faces considerable financial pressures, having reported a net loss of $99 million in the first quarter of 2025, a substantial increase from a loss of $47 million during the same period a year prior. Furthermore, customer credit losses experienced a 17% year-on-year rise, raising pertinent questions regarding the long-term sustainability of its traditional business model and highlighting the critical need for its current diversification efforts.

Klarna’s valuation trajectory also reflects these challenges; after reaching a peak of approximately $46 billion in 2021 following a SoftBank-led funding round, the company endured an 85% reduction in its valuation by 2022. This sharp decline was largely attributed to a period of high interest rates, leading to significant job cuts across the organization. This challenging financial backdrop further underpins Klarna’s current strategic realignment. Beyond its expanded UK presence, Klarna has held a banking license in Sweden since 2017, and CEO Sebastian Siemiatkowski has publicly indicated that securing a US banking license is also under consideration, signaling broader global ambitions to become a comprehensive financial services provider.