For millions of young internet shoppers, the verb ‘to Klarna’, meaning to make a buy-now, pay-later purchase online, has entered the lexicon. The Swedish fintech firm is one of a select group of companies, including Hoover and Google, whose names have become synonymous with their products and services.
It is, however, a double-edged sword for Sebastian Siemiatkowski, Klarna’s 40-year-old founder, as his firm has also become a lightning rod for criticism directed at the industry.
Whatever the rights and wrongs, Klarna is a very big business indeed, valued in a recent funding round at $46.6billion – or £35.5billion, which is significantly bigger than Barclays at just over £26billion. This is despite the fact Klarna is making a loss.
Decision: Sebastian Siemiatkowski says a London float is now more likely
Siemiatkowski’s 7 per cent stake in the company – which he founded in 2005 at the age of 23 with two friends – is worth more than $3billion. It has given him, wife Nina and their three children a life which would have been the stuff of fantasy when he arrived as ‘an immigrant kid’ from Poland with his parents, who divorced when he was eight.
‘We were not starving, but sometimes there was not a lot,’ he says.
‘My dad was an alcoholic and substance abuser, and it ended, unfortunately, very poorly. I myself had a problem with alcohol. I have been sober for ten years, I am a sober alcoholic,’ he says. ‘My father committed suicide as part of his illness, which was obviously a very tough experience, but my mum is still alive. She took care of us two kids and she had a back problem, she was quite sick. People are impressed with my work, but they should be impressed with her work.’
He says that subconsciously, his parents’ rows about money prompted an interest in business. As a young teen, he buried his head in books by entrepreneurs such as Sir Richard Branson and Ingvar Kamprad, the founder of Ikea.
The Eureka moment for Klarna came to him in a year off from the Stockholm School of Economics when he took a job selling factoring and accounts-receivable products to small firms.
He realised businesses were having problems with e-commerce payments and that prompted the thought that the old-fashioned catalogue method of instalments could be applied to online retail.
He set up Klarna with two cofounders, Victor Jacobsson and Niklas Adalberth, but is the only one of the three still at the company.
‘A few weeks ago I found an old email, written to my co-founders. It is along the lines of, ‘Hey, I’m sitting here, it’s really late in the evening, it’s 11pm…and I’m thinking what if this really works? What if we expand into Europe and the rest of the world? What if we start competing with the banks for real and giving them a hard time? Wouldn’t that be amazing?’
‘I don’t think I got a reply, probably they thought I was mad.’
It turned out not to be so crazy – the company now has 5,000 employees and operates in 20 countries, with 147million customers and 400,000 retailers. Backers include Sequoia Capital, one of the big players in Silicon Valley, along with SoftBank of Japan and UK private equity house Permira.
Its expansion has come at a price: losses have risen to 6.58billion Swedish krona ($688million) last year from 1.63billion previously, as it has ‘massively accelerated’ its global spread.
He believes the UK has a huge opportunity in fintech post Brexit. ‘You will create a financial centre that is going to be the best in the world and Brexit is going to help you with that. There is so much of that [EU] legislation that is not sound, it was prescriptive and was poorly written.’
The plan is for a float in the next few years. So will it be in London or New York?
‘I am very, very impressed by what I see in Britain on many levels,’ he says. The US tech market, Nasdaq, has ‘a deeper pool of investors who understand tech’, he says, but he does praise efforts by the UK Government to make the City more attractive to tech entrepreneurs. ‘I don’t know where we will end up listing but it is definitely more likely to be London than it was two years ago.’ His aim for the next few years, he says, is to branch out from buy now, pay later, and take on the big banks.
‘They have focused their innovation on pocketing money themselves rather than helping customers because there just hasn’t been enough competition.
‘At some point in the future you will wake up and your financial assistant computer system will say ‘I have analysed your mortgage and I can save you so much every month’ – the only thing you need to do is say yes.
‘We want to be that digital assistant. It goes back to the original bank manager, who cared about your finances and helped you. Somewhere along the line it went wrong. We want to bring that back. It might sound utopian but I am definitely going to push Klarna in that direction.’
Some are not convinced. ‘Klarna is a loss-maker but it is valued at more than Barclays – it doesn’t add up,’ says one senior finance industry figure. ‘Some of their users have multiple buy-now, pay-later transactions on the go with different companies. People are piling up debt and it is a scandal waiting to happen.’
Klarna has certainly mushroomed, with 16million customers and 20,000 merchants in the UK.
Buy now, pay later, where customers settle their purchases in three instalments, is its best-known product, though it also offers a ‘pay now’ product and an option to pay in full in 30 days.
There is no interest and no fees – Klarna makes its money by charging merchants. Debt collectors are sent out if borrowers persistently fail to pay up.
Not everyone is convinced by Siemiatkowski’s arguments that Klarna is the responsible face of credit. Buy now, pay later has provoked the ire of some campaigners including Labour MP Stella Creasy who labelled it ‘the next Wonga waiting to happen’, referring to the payday lender that went bust in 2018.
Klarna’s products are not currently regulated by the City watchdogs, a situation Siemiatkowski admits is not ideal. ‘I believe in competition but I am not an anarchist. In our industry we believe the fact it is entirely unregulated could lead to negative outcomes for consumers.’
He claims Klarna’s bad debt losses are ‘around 30 per cent below credit card industry standards. To me that is one proof point we are doing more responsible lending’.
He adds: ‘In the UK, losses have gone down in the last few years and on our total volume, problem debt is less than 1 per cent.’
But surely Klarna encourages people to make more purchases, or buy more expensive items than they otherwise would?
‘We usually calculate it has a lift of about 40 per cent average order value and about 20 per cent more conversions, that is 20 per cent more sales,’ he says, which in other words is a ‘yes’.
Siemiatkowski is unlikely to win over the critics who claim his products are a social menace. If he really can bring back the old-style bank manager, albeit in digital form, then Klarna might just shake up the big high street banks – though there will be plenty of pitfalls along the way.
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