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Australia's largest bank is moving with the times in a financial market where buy-now pay-later (BNPL) companies like Afterpay (ASX: APT) and Zip Co (ASX: Z1P) have gained traction with consumers and investors alike.
In its results announcement today, Commonwealth Bank (ASX: CBA) announced it had signed an agreement with Swedish online financial services company Klarna, a leading global payments provider with more than 60 million customers and 130,000 merchants.
Klarna has customers all over Europe and in the United States, and recorded a revenue of US$627 million in 2018.
Commbank said it had committed an investment of US$100 million into Klarna Holding AB, as part of the group's US$460 million capital raise that has mostly been pitched to support massive growth in the US, which is rising at an annual rate of six million new consumers.
"We will become Klarna's exclusive partner in Australia and New Zealand and intend to further invest at the parent and local level to support this partnership," Commbank said.
In a press release following the equity round that now values Klarna at US$5.5 billion, the European group said it was delighted to establish an exclusive partnership for Australia and New Zealand with Australia's largest retail and commercial bank.
Other investors in the round included HMI Capital LLC, Merian Chrysalis Investment Company Limited, Första AP-Fonden (AP1), IPGL, IVP and funds and accounts managed by BlackRock.
The Swedish company is perhaps most famous for its investment relationship with Snoop Dogg, who is part of Klarna's marketing campaign as "Smoooth Dogg."
Here I am. Smoooth Dogg. This is a big project for me as an investor in Swedish payment provider @klarna. It's time we change the game. #getsmooothhttps://t.co/rpQ1Ama4ofpic.twitter.com/rkaiMZQyG6
Snoop Dogg (@SnoopDogg) January 17, 2019
"We, all 2500 of us at Klarna, are humbled and honoured, and now also further empowered, to play a role in this improvement of an industry for the benefit of the consumer, worldwide and in the US in particular."
Statutory net profit after tax was down 8.1 per cent at $8.57 billion, but chief executive officer Matt Comyn was positive about other aspects of the business.
"While this year's headline results were impacted by customer remediation costs, revenue forgone for the benefit of customers and elevated risk and compliance expenses, our core business continued to perform well underpinned by growth in home lending, business lending and deposits," Comyn said.
"To further strengthen our leadership position in digital, we have continued to invest to bring together the best technology with the best service to deliver exceptional customer experiences."
The company also announced it would start the assisted closure of Financial Wisdom, representing an exit from the last of its aligned financial advice businesses following the sale of Count Financial to CountPlus.
The bank added it remained committed to the "orderly exist" of it remaining wealth management and mortgage broking businesses, comprising Colonial First State, Aussie Home Loans and CBA's 16 per cent stake in Mortgage Choice.
"We have simplified our business including through the sale of Sovereign, TymeDigital, Count Financial and Colonial First State Global Asset Management, and have announced our exit from aligned advice," Comyn said.
"The progress we are making on divestments further strengthens our capital position.
"This supports continued investment in our business, and subject to prevailing operating conditions, creates flexibility for the Board in its ongoing review of efficient capital management initiatives and the delivery of long-term sustainable returns."
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