Klarna and Square both made plays for your deposits in the same week, with Klarna launching Klarna Savings in the U.S. with a 3.28% APY, and Square rolling out a new high-yield tier on its existing Square Savings with a 3.50% APY.
For Klarna, this is the first time the company has offered savings accounts in the U.S., which carry no minimum deposit and no monthly fees. However, the company has offered similar “high-yield” interest-bearing accounts in Europe since 2021 and currently holds over $12.3B in deposits across eleven markets. I put “high-yield” in quotes because expectations for what that means are a lot lower in Europe, with “high-yield” APYs ranging from 1.5% to 2.5% versus 3% to 4% currently in the U.S.
Square, on the other hand, has offered Square Savings accounts since 2021, but they've only paid 1% APY. Now, for sellers that keep a daily balance of $10,000 or more, the rate jumps up to 3.5%. The accounts also carry no minimum or monthly fees, though you need $10,000 or more in deposits to reach the 3.5% APY tier.
Why do these fintechs want my deposits so badly?
Customer deposits are cheap, stable funding that Square and Klarna can subsequently lend back out at a much higher rate than they pay out in interest, pocketing the spread. Without the deposits, they're dependent on pricier wholesale funding from capital markets and institutional lenders to finance their loans.
Square is explicit about this, saying it wants to grow core deposits so it can fund its lending programs at a lower cost of capital. Klarna is after the same, plus a longer game to establish itself as a full-service bank rather than a BNPL app, which is the story it's selling investors after going public.
Two weeks ago I shared an analysis of how U.S. banks have captured almost $500B a year by paying customers with savings accounts far less than the Federal Reserve paid them. It's well worth a read if you missed it!
