Klarna’s business “is quite basic”, says Sebastian Siemiatkowski, its
founder and boss. Some 65,000 online merchants have so far hired it to
run their checkouts. Its main appeal, for both retailers and their
customers, is the simplicity of its system. Shoppers do not have to dole
out credit-card details or remember a new password. Instead, they can
simply give an e-mail and a delivery address, and leave the payment to
be sorted out later. (Klarna pays the retailer in the meantime, and
bears the risk that shoppers will not stump up in the end—something few
other payment firms do.) Customers who have previously used one
Klarna-run checkout are recognised when they visit another, further
reducing the need to fill out online forms. All this hugely increases
the “conversion” rate—the proportion of customers who actually make a
purchase after putting an item into their online “basket”.
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Like many fintech firms, Klarna believes that its algorithms do a better
job of identifying creditworthy customers than the arthritic systems
used by conventional financial firms. It relies on the e-mail and
delivery addresses supplied, as well as the size and type of purchase,
the device used, time of day and other variables.
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Klarna handled sales of roughly $10 billion in 2014 (compared with
PayPal’s $235 billion), generating $300m in revenue, all in Europe.
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Klarna has not been signing up American retailers as quickly as it had
anticipated. But it hopes two global trends will speed its expansion.
The more that online shopping moves to phones, the more pressing it is
for all online traders to make their checkouts quick and easy to use,
but still safe.
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Klarna reckons over 60% of its business today involves mobile shopping, compared with less than 10% two years ago.
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The other broad trend is for shopping across national borders. Online
markets, such as Wish.com, connect bargain-hungry consumers in rich
countries to producers of clothes, watches, toys or jewellery in, for
example, China. Klarna works with Wish on European sales, letting
customers pay for goods ordered cross-border only after getting them,
which can take weeks. That reassures shoppers not ready to trust an
anonymous Chinese T-shirt firm to deliver.
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The firm’s 45m users provide it with a big and growing pool of potential
banking customers who already have an inkling of the sort of service it
can provide.
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