By Daniel Lanyon on Friday 8 April 2022
The boss of Europe’s largest fintech business says a long term shift towards providing customers with better value products will concentrate the banking market into five or so very large global players. He wants to be one of them.
Pivoting a fintech startup’s strategy is a normal part of scaling in a rapidly changing market. Some of the most successful fintech unicorns started life doing something very different.
While best known for its 'buy now, pay later' business Klarna's CEO and founder Sebastian Siemiatkowski clearly has some big plans to use open banking to pivot his business further over the long term that go beyond the so called ‘super app’ strategy of adding in new financial products over time.
Siemiatkowski, who presides over Europe's largest fintech which has a £34.1bn valuation and 100 million customers globally, looks to swelling profits at large banks...and wants to shrink them.
"Klarna has pivoted its business a couple of times but the trajectory and journey we’re on right now comes from this one type of insight that we had. We sat down and said, what are financial services going to look like in the future?," he said this week at Innovate Finance Global Summit.
"The conclusion was one day you wake up and your computer tells you, hey, I've analysed your mortgage, and I realised that you can save £10 pounds by just switching and the only thing you need to do is say yes, and that's us," he said.
Siemiatkowski says he doesn't know when it is going to happen, just that it will happen and that ultimately it will mean "dramatic change for financial services.".
The change is tantamount to self-driving cars, in that it is inevitable but hard to gauge when it will realistically happen, he says.
“Why I know financial services and banking is not functioning for consumers, I just need to look at the profits of all the big banks to understand that it is not working,” he said.
“We are going to move towards a market with less profits where financial services will truly serve consumers,” he added.
In conversations with investors, Siemiatkowski says he makes clear on the fact that “this industry will shrink”.
“This industry, all of us, have taxed society too much money for services that don't actually benefit society, to the extent that they cost,” he said.
Klarna, however, he tells investors will have a larger slice of a smaller pie.
“We are trying to create an alternative to traditional banking services in real time,” he said.
While he says taking note of more immediate issues such as higher inflation and the war in Ukraine are important, he says that doesn’t change his view of the future direction of finance.
In this environment, he says, the definition of a successful bank will not be returns on assets or return on equity.
Instead, banks and other financial services firms should be focused on technology and software, and the ability “to take the data that consumers have chosen to share and turn it into value for them,” he said.
“To make their lives easier, make them save time, make them save money, make them less worried about their finances, that's going to be where we go,” he said.
“I want to be the person that told you that you can save £10 on your mortgage, because maybe then you'll tip me a pound for doing it,” he said.
Key to this will be the growth of its open banking business. Klarna recently formalised its open banking operation into a dedicated unit it has dubbed Kosma, after first entering the open banking space when it acquired SOFORT, a leading direct bank-to-bank payment service in Germany, in 2014.
Last year it says it doubled its bank connectivity from 6,000 to 15,000 banks making us the largest bank aggregator in the world.
Connecting peoples various bank accounts and financial products allows for the type of scenario Siemiatkowski describes although current rules do not fully allow for the functionality whereby better deals for loan or other services can be automated.
The company, in the medium term at least is concentrated on scaling its payments and BNPL business through growth in its global user base.
In Sweden and Germany, the company has about one million active card customers, where users can use Klarna to simply ‘pay now’. Globally, about 40 per cent of the volumes of Klarna’s payments are through its pay now function.
Klarna launched its payments card in the UK four weeks ago, which allows users to pay at checkout with BNPL and now says it has 100,000 active customers.
Central to Siemiatkowski’s thinking is that finance is still in the early stages of disruption that retail saw in the 2000s and resulted in the likes of Amazon coming to dominate a global market.
“I believe we're going to end up like four or five large retail banking players out there,” he said.
“The big difference is that it will be global, as opposed to local,” he said.