“I didn’t know what fintech was in the early days. Someone told me there was some place called Silicon Valley and I looked at it on Google Streetview, which had just launched back then,” reminisces Sebastian Siemiatkowski, co-founder and CEO of disruptive payments provider Klarna, of the days before he was a globally renowned entrepreneur.
That browse through Google Streetview in the early-00s (where incidentally he spotted the building of Sequoia Capital which is now a major investor in Klarna), obviously inspired him as Siemiatkowski, and his co-founders Victor Jacobsson and Niklas Adalberth, went on to build one of the most successful companies ever to come out of Sweden and one of the world’s most watched tech start-ups. A so-called unicorn business, Klarna is said to be valued at more than $2.5bn and rumours abound that it may float later this year.
Klarna, which is known for its Pay Later (deferred payment) and Pay Later in 3 (pay in instalments) services, is taking the world of online, and now in-store, payments by storm challenging global behemoths like PayPal. In the UK it counts ASOS, QUIZ, Moss Bros and Arcadia, among its clients. Global fashion giant H&M has invested in the firm and they are woking together on a global roll-out of the service, and Bestseller is also one of its biggest investors.
Last year rapper Snoop Dogg even took a stake in the firm and now fronts its ad campaigns. He is a perfect fit for Klarna with its bright pink livery and, frankly, somewhat bonkers, marketing. When TheIndustry.fashion meets Siemiatkowski, it is amid the Klarna department at its UK PR agency Trace Publicity where, among all the premium fashion and beauty brands, the fintech company has installed a rail of pink silk robes, a giant pyramid of gold-wrapped toilet rolls and rows of golden jars of peanut butter (which is a reference to the smooothness – yes, there are there “o”s when Klarna spells it – of their payments), all set off by an arrangement of fluffy white rugs.
This is all rather at odds with Siemiatkowski’s personal presentation, which can best be described as low-key; he arrives wearing jeans and a jumper and apologises for being late as his taxi was stuck in traffic (he tells himself off for not taking the tube as taxis are always a risk in the rain in London) before he bolts down a very ordinary-looking sandwich, as he hasn’t had time for lunch. It’s gone 3pm.
“We looked at at all the other fintech companies and every one of them had a blue logo, so we decided we wanted to be different,” he says by way of explanation of the rather opulent display and the pink branding in general.
Doing things differently and not listening to what anyone else told him, has in fact been at the heart of Klarna’s success. When he was 23, Siemiatkowski was taking a sabbatical from studying at the Stockholm School of Economics, and got himself a job at an accounts receivable company.
It was there that he learnt what fintech actually was and he met entrepreneurs who were starting up e-commerce websites in the post online-bubble world. In Sweden, which, unlike the UK, is averse to the use of credit cards, the online payments methods available simply weren’t sufficient.
“The Nordic countries and Germany are much more debit card-driven and paying for something online presented a very real risk for customers. People were thinking ‘what if I don’t receive it, what protection do I have?’ It was their salary they were handing over for something they hadn’t seen,” he explains.
The answer seemed simple, to offer credit. But the merchants themselves weren’t prepared to do that, so Siemiatkowski and his co-founders, with the backing of an angel investor, set up Klarna to take the risk for them. He says he was inspired by UK retailer Next, which had its mail order Directory and offered customers credit. It proved to him that the model worked and that the consumer would buy clothes without having seen them first.
However, while this customer-centric and seemingly wholly logical approach, made a great deal of sense, people told Siemiatkowski that his business would never take off. Undeterred he set off around Sweden in a Volvo to meet e-commerce entrepreneurs who were “very open” to the conversation.
He realised early on that the key to success was seeking out fellow entrepreneurs and getting those on board before the others followed. “If I called a big company, I would speak to the head of accounts and they wouldn’t be interested in changing, but an entrepreneur would say ‘what, I can save £100? Come and see me!’.”
“It was a fun time,” he says of all the e-commerce businesses springing up. “Google Adwords were really cheap and there was all of this opportunity. You really didn’t need to be super-sophisticated.”
Today around half of all online payments in Sweden are “Klarna’d”; yes it’s become more than a brand, it’s become a verb. Despite its success at home, Germany is in fact its largest market. People told him it wouldn’t take off there either, but they went ahead and did it anyway. “In fact, people were always telling me it wouldn’t work,” he says looking faintly puzzled.
By the time it decided to look at the UK market, the naysayers (and the fact that UK consumers have no qualms about credit cards) had an affect, and Klarna thought it would have to approach things differently. Luke Griffiths, who heads up the UK operation, was sent out to do some research on new services, but he came back and told them to just keep doing what they did elsewhere. He was right.
The first time the brand really came into the consciousness of the UK market was when young fashion giant ASOS signed up. “That was a big break,” he says. Several big brands followed suit, but Klarna also supports smaller companies and recently set up its Smoooth Stores initiative to give.a profile and financial support to up and coming independent retailers.
But fast fashion brands do seem a particularly good fit, given that Klarna’s customer base is largely (though not exclusively) Millennials in their late 20s and early 30s. Klarna is about to reach the 5m customer mark in the UK after just two years, and so attached are some customers already to the service, that they think about buying something from Klarna before they think about the actual brand or retailer the items will come from.
Perhaps partly for this reason the company has decided to dabble in retail itself, setting up a pop-up shop in London’s Covent Garden, selling a range of goods from its partner companies including ASOS, Beauty Bay, Cambridge Satchel Company, Finery, Schuh and Swoon. Customers could take part in experiences and pay for anything on the Klarna app by zapping a QR code.
“It was a combination of things,” says Siemiatkowski of the motivation behind the project. “It’s about testing and learning and experimenting, we can work with brands in many ways and we can challenge things together. Whatever works for the client, works for us.”
Indeed the relationships Klarna has with its various brands can differ greatly. Some brands shy away from the Pay Later option, fearful that it would encourage returns, though Siemiatkowski insists it doesn’t and, in fact, increases order value and loyalty. In such cases though, they can offer Pay Later in 3. With H&M, for instance, the relationship is building into more of a store credit situation, where Klarna (which is a registered bank) works in much the same way as an old store card did.
Offering credit in this way can mean retailers don’t have to offer discounts to lure customers in to spend money they otherwise may not have done. And anything that enables a full-price sale has to be a good thing.
With end consumers starting to think Klarna first, brand second and having dipped its toe in operating a physical store of its own, it doesn’t seem such a stretch to imagine Klarna moving into retail itself in the future. “Will we open our own stores? Who knows? Maybe,” he muses.
Perhaps all it will take for him to be convinced to do it is for someone to tell him that he can’t.