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I think it's far too early to make a conclusive judgement that they can't compete. They definitely faltered with their launch in Australia, but they have since put in place a new local leadership team and a strategic stake in Z1P might be one element of their response plan. The jury is still out on who will win in the US and UK, but the signs are positive for Afterpay.

Afterpay winning the UK would be significant, as it would demonstrate that Klarna's first-mover advantage can be eroded, which would imply that Afterpay's offering is superior. Afterpay could then pick them off, one territory at a time.

Only when Afterpay overtakes them in Sweden (or another stronghold such as Germany) can we start to lay claim to beating them in their own backyard. If this were to eventuate, it would in effect crown Afterpay the king. This is why Klarna took up the challenge of competing with Afterpay on their home turf. Whilst the odds would always be stacked against them, it was the correct play, because winning in Australia would be the start of Afterpay's (slow) demise. They had to do it, because the longer they waited, the harder it would become. The biggest mistake Klarna made was waiting as long as they did to enter Australia.

In my view, the Klarna/Z1P (rumoured) combo is not weak; it's the smart play. If Klarna were weak, they'd accept defeat in Australia and focus on protecting what they have, but they know that this would eventually lead to their undoing.

The situation is different for Afterpay - being the younger, smaller, but faster growing company, now is not the time to go all out against Klarna in their own backyard. Win the US, win the UK, win some strategic territories in continental Europe and Asia, expand into nearby territories, then ... probably many years from now .... go for the kill.

To date, its difficult to find too much fault with Afterpay's strategy and execution. They've already seen off several threats and challenges, but one thing that we can be certain of in business is that there will always be competition. If it's not Klarna/Z1P, it'll be PayPal or somebody else. Afterpay will need to recognise these threats (which isn't always as easy as it sounds as Blockbuster can attest), respond and nullify these threats, and innovate to keep at least one step ahead of the chasing pack.