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How Klarna became Europe’s largest fintech?

Klarna founder and chief executive Sebastian Siemiatkowski is preparing the fintech for further moves into banking services.

a couple of men sitting in chairs


Sebastian Siemiatkowski (pictured, left) went from flipping burgers to running Europe’s largest fintech, valued at $5.5bn after raising a further $460m from investors last week. Buy-now-pay-later payments firm Klarna, founded in 2005, has manoeuvred itself into a position, along with a handful of fintechs and big tech giants, to threaten the dominance of banks in the global financial system. This is how the 38-year-old Swede did it.

Early years

Siemiatkowski was born in Sweden in 1981 to Polish parents. His father worked as a cab driver and a food inspector, his mother was a painter.

He says: “There was something about becoming financially successful that intrigued me. As a kid, I used to spend a lot of time coming up with business ideas, and I read a lot of business books about successful entrepreneurs like Richard Branson.”   

Siemiatkowski said he began his “working life early” at 15 in a Burger King in Uppsala, central Sweden, where he met Niklas Adalberth. The pair became friends and constantly discussed business ideas. 

He later co-founded Klarna with Adalberth and Victor Jacobsson, who he met later while studying for a business and economics degree at Stockholm School of Economics.

During his degree, Siemiatkowski sold telesales and was promoted to the team leader’s post at 21. He said: “It was the first time I started to learn about managing a team.”     

Siemiatkowski and Adalberth decided to take a year off their studies and travelled around the world - without flying. For young men on a tight budget, that meant taking cargo ships between continents. 

“Many days on cargo ships across the oceans gives you lots of time to think,” says Siemiatkowski. He adds it was then that they began to have ideas about simplifying e-commerce for consumers that would lead to Klarna.

Setting up shop 

The three men, all in their early twenties, set up Klarna in a small office in Stockholm in 2005.

Their business idea is as old as the hills, offering consumers the chance to pay for goods after receiving them.  A business model based on mail-order catalogues. 

At that time, consumers were hesitant to shop online as it was widely regarded as unsafe, complicated and frustrating. Separating the payment from the purchase solved for that, said the Swede. Consumers began to trust the service because they wouldn’t pay for the goods until they knew they wanted to keep them.

Klarna analyses a person's online credit history in a few minutes and browsing behavior to determine if they are creditworthy. If they are, the purchase is made, with the payments firm loaning the cash to the customer.  

The trio then began years of convincing retailers to take up their service, one by one.

Siemiatkowski said to present the right impression in meetings, they wore suits, printed proper business cards on expensive paper, and even picked telephone numbers similar to switchboard numbers to fool clients into believing they were big enough to actually have a switchboard. 

“We believed all these things were needed to convince merchants to trust us with all their money,” says Siemiatkowski.

Boom years

The business began to strike deals with global retailers as Ikea, Adidas and Zara as well as small groups such as UK fashion retailer iSmash, which runs 26 shops in London, Manchester and Leeds.

The potential to boost sales is the reason why retailers take up Klarna’s service.

Klarna said that customers who use its Pay in 4 service – which offers shoppers the option of paying for goods in four equal payments with no interest or fees – spend up to 68 per cent more than retailer’s average order values. 

The fintech provides delayed payment services to over 130,000 merchants around the world, services 60 million customers and employs 2,500 staff. 

The firm’s total operating revenues jumped 31 per cent to 5.5bn Swedish crowns (£470m) in 2018, compared to a year ago. Its total sales have jumped by 175 per cent over the last five years.

Germany, Austria and Switzerland are Klarna’a largest markets, according to its most recent 2018 income statement, but adds that it sees “huge momentum in the UK” where it has struck deals with such retailers as Asos, Topshop, and JD Sports.

In recent years it has begun a US push. Klarna says it has deals with over 3,000 merchants in the US - including rue21, Asos, Lulus, Toms, Superdry and Sonos. It adds its American business is growing at an annual rate of six million consumers a year.

In the firm’s most recent funding round last week, key investors included San Francisco-based investment group Dragoneer, HMI Capital, Merian Chrysalis Investment and the Commonwealth Bank of Australia. It had raised $775m before last week’s funding announcement, according to Crunchbase.

In January, US rapper Snoop Dogg also became a backer of Klarna and took on a role as its marketing “face”.

Siemiatkowski, who now describes his role as “a mix of a sales guy and business economist” says: “Being the size we are now, it is challenging to keep everyone and everything moving in the same direction.”

Klarna’s main competitors are US payments rival PayPal and its financing business, PayPal Credit as well as Apple, Square, and Amazon payment services. It also completes more directly against New Zealand’s buy-now-pay-later business Laybuy, while Australian rival Afterpay launched in the UK in June after buying UK rival Clearpay and trading under that name.

Most of these services are used by people in their early twenties, and critics say these consumers are encouraged to take on dangerous levels of debt.

Many of these fintech payments firms say many of their flagship services do not include fees or interest if payments are made on time. However, those who fail to meet payments do face charges and are ultimately handed over to debt collectors.

What next?    

Klarna acquired a banking license from Finansinspektionen, the Swedish Financial Supervisory Authority in 2017.

Siemiatkowski says Open Banking rules brought in across the European Union at the start of the year provide the “prerequisites for massive disruption” and will empower all European consumers with the ownership of their financial and personal data.”

He adds: “We also see that consumers are willing to switch, it is a lot easier to switch, the services are overall better and new players are entering the market, increasing the competition even further.

He adds: “Our product and service offering will keep evolving, we will continue to explore opportunities the bank license gives us, evaluate entering new markets and continue growing on current ones – in short, there are a lot of things going on.”   

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